Modest differences in higher-order beliefs may have large price effects. We generalize a standard rational expectations equilibrium model with different information by allowing differences in higher-order beliefs. Investors have possibly different dogmatic beliefs about the mean, different...

Can financial markets aggregate information dispersed among traders and allow traders to achieve their target inventories? To examine this question, we study a model of a double auction among finitely many traders who are all rational, strategic, risk averse, and informed about the value of a...