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| Marco Scarsini and Yossi Feinberg |
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| ''Rate of Arbitrage and Reconciled Beliefs'' |
| ( 2003, Vol. 4 No.11 ) |
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| 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. |
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| Keywords: |
JEL: D8 - Information, Knowledge, and Uncertainty: General
D7 - Analysis of Collective Decision-Making: General |
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| Manuscript Received : Mar 03 2003 | | Manuscript Accepted : Mar 06 2003 |
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