Market selection in large economies: A matter of luck

In a general equilibrium model with a continuum of traders and bounded aggregate endowment, I investigate the market selection hypothesis that markets favor traders with accurate beliefs. Contrary to known results for economies with (only) finitely many traders, I find that risk attitudes affect traders' survival and that markets can favor “lucky” traders with incorrect beliefs over “skilled” traders with accurate beliefs. My model allows for a clear distinction between luck and skills, and it shows that market selection forces induce efficient prices even when accurate traders do not survive in the long run.