This work was stimulated by a comment made by a former student (Prof. Alan Erera of Georgia Tech) in connection with an inventory stabil ity game he was going to play in one of his logistics classes. This was the well-known "beer-game" that is often played in business schools to illus trate the "bullwhip" effect in supply chains. Al had said to me that he did not have to tell his students how to reorder replacement parts from the other members of the supply chain because he knew from experience that the order sizes the players would generate as the game progressed would become chaotic anyhow....

Continuous-time finance was developed in the late sixties and early seventies by R. C. Merton. Over the years, due to its elegance and analytical conve- nience, the continuous-time paradigm has become the standard tool of anal- ysis in portfolio theory and asset pricing. However, and probably because it was developed hand in hand with option pricing, in which investors' expecta- tions were thought not to matter, continuous-time finance has for a long time almost entirely neglected investors' beliefs. More recently, the development of martingale pricing techniques, in which expectations playa...