There is an extensive litarature claiming that it is often difficult to make use of arbitrage opportunities in financial markets. This paper provides a new reason why existing arbitrage opportunities might not be seized. We consider a world with short-lived securities, no short-selling...

There is an extensive literature claiming that it is often difficult to make use of arbitrage opportunities in nancial markets. This paper provides a new reason why existing arbitrage opportunities might not be seized. We consider a world with short-lived securities, no short-selling constraints...

Two approaches have been proposed in the literature to refine the rationalizability solution concept: either assuming that players make small errors when playing their strategies, or assuming that there is a small amount of payoff uncertainty. We show that both approaches lead to the same...