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    Problems in economics

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    7 views16 pages

    Some Problems of Measure Theory Which Are Related To Economic Theory

    Uploaded by

    Guillermo González Rubilar
    Problems in economics

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 16
    STOCHASTICA Vol. VI n@ 3 (1982) SOME PROBLEMS OF MEASURE THEORY WHICH ARE RELATED TO ECONOMIC THEORY Heinz J. Skala ABSTRACT After a short disoussion of the firet applica tion of measure theoretic toole to economics we show that tt te conetetent relative to the usual aztoms of set theory that there existe no nonatomée probability space of power less than the continuum. This together vith other reeulte ehove that Aumann'e continuun-of-agente methodology provides a eound framevork at least for the cooperative theory. There are, houever, other probleme in econo- mice where, vithout further aseunptions, the continuum may be beat model of large societies, 1. Introduction. Since the origin of modern economics economists always felt that In the presence of a large number of agents the influence of a single ind gible. ual on the proces in @ market should be negli In order to show that this idea is consistent we need so- me model where the single individual has no weight but large coa litions have @ positive weight. Such a model of an ideal economy is easily provided by a nonatomic measure space (A,a,m) where A denotes the set of agents, @ is the o-algebra of measurable coa 305 Heins J. Skala 306 litions and m is @ nonatomic o-additive measure, i.e. there is no Beasuch that for each CCB, Cea,either m(C) = 0 or m(B-c)=0.") The first important result in mathematical economics where the measure space approach was applied Is due to Aumann (1964) who used the unit interval endowed with the Borel sets and Lebes- gue measure to model a large economy and showed that for this mo- del two different equilibrium concepts, the core and the Walras equilibria, are equivalent. As in the absence of the continuum hypothesis the power of the continuum may be very large Aumann's choice seems to be quite arbitrary and we may ask whether there exist uncountable nonatomic probability spaces having power less than the continuum. We shall see presently that it is consistent relative to zF¢ *) that the answer is no. This, as well as the re sults of Debreu and Scarf (1963), Kannai (1969) and Schmeidier (1972), shows in particular that Aumann's continuum-of-agents me- thodelogy provides a good framework for the cooperative theory. The existence of nonmeasurable sets, which means that a lot of possible coal Ions must be dismissed, Is @ minor annoyance in this context. We also note that Aumann's result may be obtained by starting with a countable set of agents and a finitely additi- 1) The most important measure, spaces used in economics are sepa- rable met spaces endowed with their Borel sets and a finite measure m. For such measure spaces it Is easily seen that m is nonatomic iff m vanishes for all singletons. If need be we shall tacitly assume that a is completed by the negligible coalitions, Toe. If there are sets B,Ceaand DCA such that BCOCC and m(C-8) = 0 then Dea. 2) ZF denotes the usual axioms of Zermelo-Fraenkel set theory. ZFC denotes ZF together with the axiom of choice (AC). Some problens of meacure theory which are related to... 307 ve nonatomié measure ') (see Pallaschke (1976)). However, there are other economic problens where we have no good hints how to mode! large economies in an appropriate way. Examples to the point are the social choice problem @ 1a Arrow (1963) and noncoo- perative exchange as discussed by Dubey and Shapley (1979) where serious technical and methodological difficulties occur. We shall investigate some set theoretical assumptions which may be used to overcone these difficulties. The reader who Is Interested In a survey of applications of measure theory to economics should con sult Kirman (1981). On the existence of nonatomic probability spaces. It is well known that in the absence of the continuum hypo- thesis, (CH) which says 2X0 = x,, the continuum may be very lar- ge. As some mathematicians - amongst them Godel - feel that cH is False because of its implausible consequences we should not assu- me it for our purposes. If we insist that the weight of the coali tions should be represented by a a-aditive nonatomic probability measure then large economics cannot be modelled by countably infi nite sets. Are there uncountably infinite nonatomic probability spaces of cardinality less than 2X0 7, We shall see that the ans- wer no" Is consistent relative to ZFC. Thus the continuum-of- agents methodology is a safe choice If we want the measure to be o-additive. However, one should note that the mentioned technical and methodological difficulties with some economic problems are ) assumptions: due to one of the following (impli n order to characterize (i) The use of a-additive measur: the influence of a coalition. 1) If @ measure is not assumed to be c-additive we always ment this explicitely. Heins J. Skata 308 (i) The unrestricted use of the axiom of choice which is res~ ponsible for the existence of nonmeasurable sets. As neither of these assumptions can be motivated by purely economic arguments they are open for modification In order to gi- ve a more satisfactory picture of the affairs in question. Theorem It is consistent relative to ZFC that there exists no monatomic probability space (A,a,m) such that |A|<2%°, In order to prove this theorem we show that Martin's Axiom (MA) implies the nonexistence of the probability spaces In ques tion. As Solovay and Tennenbaum (see Kunen (1980)) proved the consistency of 2FC + MA + 2%>x, our theorem Innediately follows. Let us now state a topological version of Hartin's Axton. Fors proof of the equivalence to the or Kunen (1980). nal form see e.g. For any xox, MA(k) is the following assertion: If X is any compact Hausdorff space which has the countable chain condition (c.c.c) ') and 6 are dense open sets for a0. Let mp denote the restriction of m to ¢ and ob, serve that mp is regular. Hence the support C of me exists, there is a closed (compact) subset C'C C such that me (C-c')= 0 ‘and mo(C'M G)> 0 for every open subset GCX For which C1 NGHB. Our assumption m(F,)=0, for all ack, immediately implies that m(c! FS)=m(C!) for all ack. Let us now assume that there is an ack such that (c'MFS) Is not dense in C*. Then there exists a nonempty open c" CC! such that cM A(c!M FS)=B. By the support property of C' we have m(C")>0 and hence m(C")+m(C'M Fa) > m(Ct). But this Is impossible as cn (cS) Cor. In order to apply MA(k) it remains to show that C' has the c-e.c. This is done by adopting an argument of Marczewsk ki (1948). As m(C*), be a continuous preference order on (a). Assume that the Let (A,a,m) be any probability space (the space of set ((x,y,a): xep(a), x >, YICR™ XR" XA is measurable in the product structure, when R” is endowed with its Borel structure. Then almost every continuous preference order >, can be repre~ sented by a function u, in such a way that u,(x) As @(a) may be interpreted as the set of all bundles of goods considered by agent a one would like to get rid of the res trictive assumption of connectedness. Aumann argued that theorem 3.1, would follow without the connectedness assumption if every tl-or pcAcset (= projection of a coanalytic set) of reals 1s te= besgue measurable. In view of Gédel's (1938) proof that the e: tence of non-Lebesgue measurable PCA-set is consistent with ZFC the best we can expect is an independence proof. This however is easily established by Theoren 3.2. Assume MA(x,). Then every PCA-set of reals is Lebes gue measurable. Some problems of measure theory which are related to .. au Proof. it is well known that every PCA-set can be represen- ted as union of X, Borel sets. As theorem 2.2. immediately implies that the union of P. We look for a social preference rule o:F + P. Arrow proved that for finite societies certain rationality assumptions imply that only dictatorial rules are left. |.e. there exists an 2A such that, no matter what the preferences of the other agents are, if a prefers x to y, then the society prefers x to y. In the usual notation this may be written as x f (a) y implies xo (fly. As dictatorial rules are socially undesirable we ask whether for large (infinite) societies this result still holds. Let us say that a set of agents BCA is decisive if, when all members of 8 prefer x toy, then so does the whole society. We very well know the structure of the decisive sets. It simply forms an ultrafil~ ter on A. As for finite A every ultrafilter on A simply consists of all supersets of {a} for some aeA, Arrow's Impossibility theo rem is easily established. However for infinite A one easily pro ves in ZFC that there exist ultrafilters which are not generated by a Singleton. This shows the possibility of nondictatorial ru- les for infinite societies. However, if the set of alternatives involved is also inf fe, then an approp: one of Arrow's axioms implies that nondictatorial rules exist iff there exists a measurable cardinal ') (see Skala (1981). As te strengthening of we cannot expect to prove in ZFC that a measurable cardinal exist one may safely assume that for Infinite A and X only dictatorial rules exist. 1) A cardinal « is measurable if there exists a nontrivial {0,1}-valued o-additive measure which Is defined on all sub- sets of x. Some probleme of measure theory which are related to a8 What result is typical for large real societies? It is the author's opinion that in some sense nondictatorial rules should exist for large real societies. As up to now our results give us hint how to model large socie (the results are ies in the social choice context hly sensitive with respect to various set theoretical assumptions (see Skala (1981)) it seems safe to re- tain formal finiteness and investigate *-finite societies in the sense of nonstandard analysis. We shall not do this here but res trict ourselves to present some results of the measure spaces approach to the social choice problem. Let (A,asm) be a nonatomic probability space. Intuitively we want that "small" coalitions should not be decisive. If only Single agents should be nondecisive than obviously nondictatorial rules exist. However, in the measure space context it makes not much sense to discuss single agents. The next notion of smaliness which comes into mind Is the one of measure zero. |) As the complements of sets of measure ze ro have the finite intersection property they can be extended to a free ultrafilter and we have again nondictatorial rules. A still stronger notion of smallness was used by Kirman and Sondermann (1972). They proved that any social rule has the fo- Mowing property: For any given ¢>0 there exists a decisive set Bwith m (B) [0,1] may occur as strategy selection. The difficulty arises when the agents! declared intentions as represented by g are to be implemented to the market as a whole. This requires to pass from g to a set function G:a +R. The most obvious way to do so is by direct tegration: 6(8) = fg dm. 8 1 WIT] be the typical outcome of noncooperative actions. » however, leaves us with the non-measurable functions which Shapley's original Idea was to trap g between measurable functions and to define f m-measurable}, 6, (8) = max (ff dm f 0 there exists @ measura- ble function f and a measure extension (A,d,m) such that Bfaea:| F(a) ~ g(a) [

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