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Marco Scarsini and Yossi Feinberg
''Rate of Arbitrage and Reconciled Beliefs''
( 2003, Vol. 4 No.11 )
Any group of risk neutral agents who hold differing beliefs is vulnerable to money pumps (arbitrage). Thus, the agents may wish to reconcile their beliefs into a new joint belief. We propose a criterion for the choice of reconciled belief based on the notion of ``rate of arbitrage.''' It is shown that there exists a unique belief (probability distribution) that minimizes the maximal expected rate of arbitrage, and an explicit formula for this belief is given.
JEL: D8 - Information, Knowledge, and Uncertainty: General
D7 - Analysis of Collective Decision-Making: General
Manuscript Received : Mar 03 2003 Manuscript Accepted : Mar 06 2003

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