Latest articles from Investors Book (http://www.investorsbook.com) http://www.investorsbook.com 2012-05-22T07:43:54+01:00 text/html 2007-07-12T15:33:46+01:00 http://www.investorsbook.com http://www.investorsbook.com/the-arrowdebreu-contingent-claims-a255.html The Nobel-prizing winning paradigm of Arrow and Debreu, the so-called contingent claims model of speculation, contains a flaw identified by Nagatani (1975). This flaw relates to uncertainty of traders about what price will prevail in a given state of the world. Prices are normally endogenous to a market and determined by supply and demand. Unless prices are defined exogenously in the state of the world, traders in these models will speculate on what they believe others think the prevailing prices will be.