This article studies belief heterogeneity in a benchmark competitive asset market: a market for Arrow–Debreu securities. We show that differences in agents' beliefs lead to a systematic pricing pattern, the favourite–longshot bias (FLB): securities with a low-pay-out probability are...

Technological advances in the insurance industry mean that insurers now may be better informed about underlying risks faced by individual consumers than consumers themselves. We evaluate the impact of these information frictions on welfare by combining demand elicitation surveys with insurance...