A bias aggregation theorem

In a market where some traders are rational (maximize expected utility) and others are systematically biased (deviate from expected utility due to some bias parameter, θ), do equilibrium prices necessarily depend on θ? Focusing on the case where there is an aggregate and systematic bias in the population, we show that market prices can still be unbiased. Hence, we establish that systematically biased agents do not necessarily imply biased market prices. •We study a market where all traders are systematically biased.•We show that equilibrium market prices can still be unbiased.•We extend our result to the case where the bias is heterogeneous across traders.