We analyze multiple-beliefs based efficiency measures in economies with risk
and disagreement, including belief neutral efficiency and inefficiency, incomplete
knowledge efficiency, efficiency based on unanimity, and utility aggregators that
minimize Bergson welfare functions over multiple beliefs. We provide equivalence
results under technical conditions that are satisfied in several work-horse economies,
including the exchange economy and a standard economy with a linear production
technology. We also provide several examples for which these measures differ. Our
results show that the further away one gets from the standard exchange economy,
the more the different multiple-beliefs based measures differ in the allocations they
identify as efficient, in general. Consequently, the more important the choice of efficiency measures becomes.
Ehling, Paul; Gallmeyer, Michael, Heyerdahl-Larsen, Christian & Illeditsch, Philipp (2018)
We study asset prices and portfolio choice with overlapping generations, where the young disregard history to learn from own experience. Disregarding history implies less precise estimates of output growth, which in equilibrium leads the young to increase their investment in risky assets after positive returns, that is, they act as trend chasers. In equilibrium, the risk premium decreases after a positive shock and, therefore, trend chasing young agents lose wealth relative to old agents who behave as contrarians. Consistent with findings from survey data, the average belief about the risk premium in the economy relates negatively to future excess returns and is smoother than the true risk premium.