Incomplete information equilibria: Separation theorems and other myths
 David Feldman
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The incomplete information financial economic equilibrium (IIE) literature has been growing at an increasing rate since its inception in the early 1980s. This paper examines issues and concepts essential to understanding, implementing, and testing IIE and understanding its relation to complete information equilibria (CIE). Concepts include the number of state variables in an IIE visàvis the number of state variables in a corresponding CIE; the irrelevance of separation theorems to IIE and the relevance, instead, of a more general state space (re)representation theorem; the identification of unobservable productivity processes that lead to complete information; the relative level of variable variances in a CIE and the corresponding IIE; stochastic CIE with corresponding deterministic IIE and deterministic CIE with corresponding stochastic IIE; the relationship between IIE and incomplete markets; the (im)persistence of heterogeneous beliefs; and the relation of IIE to the model uncertainty/ambiguity approaches. Understanding these concepts under IIE facilitates understanding the CIE, a special case of IIE.
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 Title
 Incomplete information equilibria: Separation theorems and other myths
 Journal

Annals of Operations Research
Volume 151, Issue 1 , pp 119149
 Cover Date
 20070401
 DOI
 10.1007/s1047900601193
 Print ISSN
 02545330
 Online ISSN
 15729338
 Publisher
 Kluwer Academic PublishersPlenum Publishers
 Additional Links
 Topics
 Keywords

 Incomplete information
 Equilibrium
 Asset pricing
 Separation
 State variables
 Industry Sectors
 Authors

 David Feldman ^{(1)}
 Author Affiliations

 1. School of Banking and Finance, The University of New South Wales, UNSW, Sydney, 2052, Australia