The arbitrage pricing theorem with incomplete preferences |
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Affiliation: | 1. Department of Economics, School of Business and Economics, University of Exeter, Rennes Drive, Exeter, Devon, EX4 4PU, England, United Kingdom;2. Department of Banking and Finance, Faculty of Commerce, Yeditepe University, 34755 Istanbul, Turkey |
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Abstract: | This paper proves existence of equilibrium and the arbitrage pricing theorem for an asset exchange economy, where individuals' preferences may be incomplete or intransitive. This extends existing results to more general preferences. We also prove the arbitrage pricing theorem for a theory of choice under uncertainty by Bewley [Bewley, T. F. (2002), Knightian decision theory: part I, Decisions in Economics and Finance 25, 79–110.]. These preferences model Knightian uncertainty by preferences which may be incomplete but satisfy independence. |
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