No-Betting-Pareto Dominance

Abstract: We argue that the notion of Pareto dominance is not as compelling in the presence of uncertainty as it is under certainty. In particular, voluntary trade based on di fferences in tastes is commonly accepted as desirable, because no agent can be wrong about her tastes. By contrast, voluntary trade based on incompatible beliefs may indicate that at least one agent is wrong about her beliefs. We propose and characterize a weaker, No-Betting, notion of Pareto domination which requires, on top of unanimity of preference, the existence of shared beliefs that can rationalize such preference for each agent.