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UBC Theses and Dissertations

Preferences, endowments and beliefs as revealed in market prices Sick, Gordon A.


This thesis examines conditions under which prices signal information about agents' preferences, endowments and/or probability information. In a multi-period economy, this information is important because it helps agents to make inferences about future prices. In a single period economy, this is important because, even if agents are only interested in other agents' probability information, it is important for them to be able to distinguish its effect on prices from the effects of preferences and endowments on prices. Several exchange economy models are constructed to see under what conditions a fully informing rational expectations equilibrium (FRE) exists in which the relevant information is revealed by prices. One class of models is in a two period state preference setting in which preferences exhibit linear risk tolerance (so that aggregate preferences exist). It is shown that a FRE exists that reveals aggregate preference parameters. In another two period state preference model with power utility (in which aggregate preferences do not exist), it is shown that prices generically can reveal local information about the distribution of agents' endowments. In another class of models, in both one period and two period settings with specific distributional assumptions , (normal and non-central gamma returns), conditions are found under which prices reveal information about probabilities, aggregate risk preferences and aggregate impatience. The thesis discusses the notion of a rational expectations equilibrium as a solution of a fixed point problem. It also discusses information in terms of a-algebras and partitions of state spaces.

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