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Changes per #721:
- prior distributions
- posterior distributions
- speculative behavior
- ex dividend
- Short sales are prohibited
- Harsanyi Common Priors Doctrine
All terms changed from italic to bold as they are definitions per style guide.
Copy file name to clipboardExpand all lines: lectures/morris_learn.md
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@@ -50,12 +50,12 @@ Key features of the environment in Morris's model include:
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* A single parameter indexes the set of statistical models
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* All traders observe the same dividend history
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* All traders use Bayes' Law to update beliefs
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* Traders have different initial *prior distributions* over the parameter
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* Traders' *posterior distributions* over the parameter eventually merge
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* Traders have different initial **prior distributions** over the parameter
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* Traders' **posterior distributions** over the parameter eventually merge
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* Before their posterior distributions merge, traders disagree about the predictive density over prospective dividends
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* therefore they disagree about the value of the asset
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Just as in the hard-wired beliefs model of Harrison and Kreps, those differences of opinion induce investors to engage in *speculative behavior* in the following sense:
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Just as in the hard-wired beliefs model of Harrison and Kreps, those differences of opinion induce investors to engage in **speculative behavior** in the following sense:
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* sometimes they are willing to pay more for the asset than what they think is its "fundamental" value, i.e., the expected discounted value of its prospective dividend stream
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@@ -110,11 +110,11 @@ Traders buy and sell the risky asset in competitive markets each period $t = 0,
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As in Harrison-Kreps:
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* The asset is traded *ex dividend*
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* The asset is traded **ex dividend**
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* An owner of a share at the end of time $t$ is entitled to the dividend at time $t+1$
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* An owner of a share at the end of period $t$ also has the right to sell the share at time $t+1$ after having received the dividend at time $t+1$.
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*Short sales are prohibited*.
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**Short sales are prohibited**.
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This matters because it limits how pessimists can express their opinions:
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@@ -151,7 +151,7 @@ reduce the set of models to a single model by imputing to all agents inside the
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A set of statistical models that has a particular geometric structure is called a [manifold](https://en.wikipedia.org/wiki/Manifold) of statistical models. Morris endows traders with a shared manifold of statistical models.
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```
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Proceeding in this way adheres to the *Harsanyi Common Priors Doctrine*.
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Proceeding in this way adheres to the **Harsanyi Common Priors Doctrine**.
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