Market selection in large economies: a matter of luck

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Abstract

In a general equilibrium model with a continuum of traders and bounded aggregate endowment, I investigate the Market Selection Hypothesis that markets favor traders with accurate beliefs. Contrary to known results for economies with (only) finitely many traders, I find that risk attitudes affect traders' survival and that markets can favor 'lucky' traders with incorrect beliefs over 'skilled' traders with accurate beliefs. My model allows for a clear distinction between luck and skills and it shows that market selection forces induce efficient prices even when accurate traders do not survive in the long run.
Original languageEnglish
Pages (from-to)437–473
Number of pages37
JournalTheoretical Economics
Volume14
Early online date6 Aug 2018
DOIs
Publication statusPublished - 2019

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