205:, is a contract whose future payoffs depend on future states of the world. For example, suppose you can bet on the outcome of a coin toss. If you guess the outcome correctly, you will win one dollar, and otherwise you will lose one dollar. A bet on heads is a state claim, with payoff of one dollar if heads is the outcome, and payoff of negative one dollar if tails is the outcome. "Heads" and "tails" are the states of the world in this example. A state-contingent claim can be represented as a payoff vector with one element for each state of the world, e.g. (payoff if heads, payoff if tails). So a bet on heads can be represented as ($ 1, −$ 1) and a bet on tails can be represented as (−$ 1, $ 1). Notice that by placing one bet on heads and one bet on tails, you have a state-contingent claim of ($ 0, $ 0); that is, the payoff is the same regardless of which state of the world occurs.
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165:. Here, goods are state-contingent; that is, a good includes the time and state of the world in which it is consumed. For instance, an umbrella tomorrow if it rains is a distinct good from an umbrella tomorrow if it is clear. The study of complete markets is central to state-preference theory. The theory can be traced to the work of
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Buckle, Michael J.; Buckle, Mike; Thompson, John (7 March 2018).
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Every asset in every possible state of the world has a price.
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