Related papers: Num\'{e}raire-invariant preferences in financial m…
A perfectly rational decision-maker chooses the best action with the highest utility gain from a set of possible actions. The optimality principles that describe such decision processes do not take into account the computational costs of…
The paper investigates quadratic hedging in a semimartingale market that does not necessarily contain a risk-free asset. An equivalence result for hedging with and without numeraire change is established. This permits direct computation of…
We pursue an inverse approach to utility theory and consumption & investment problems. Instead of specifying an agent's utility function and deriving her actions, we assume we observe her actions (i.e. her consumption and investment…
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
In most contemporary approaches to decision making, a decision problem is described by a sets of states and set of outcomes, and a rich set of acts, which are functions from states to outcomes over which the decision maker (DM) has…
Adaptive populations such as those in financial markets and distributed control can be modeled by the Minority Game. We consider how their dynamics depends on the agents' initial preferences of strategies, when the agents use linear or…
The Random Utility Model (RUM) is the gold standard in describing the behavior of a population of consumers. The RUM operates under the assumption of transitivity in consumers' preference relationships, but the empirical literature has…
This paper studies robust forward investment and consumption preferences within a zero-volatility context. Different from previous works, we consider an incomplete financial market model due to general investment portfolio constraints. We…
A central push in operations models over the last decade has been the incorporation of models of customer choice. Real world implementations of many of these models face the formidable stumbling block of simply identifying the `right' model…
We consider a stochastic optimal control problem in a market model with temporary and permanent price impact, which is related to an expected utility maximization problem under finite fuel constraint. We establish the initial condition…
In this paper we propose to use elements of the mathematical formalism of Quantum Mechanics to capture the idea that agents' preferences, in addition to being typically uncertain, can also be indeterminate. They are determined (i.e.,…
We consider the problem of Adverse Selection and optimal derivative design within a Principal-Agent framework. The principal's income is exposed to non-hedgeable risk factors arising, for instance, from weather or climate phenomena. She…
This paper studies a one-sector optimal growth model with i.i.d. productivity shocks that are allowed to be unbounded. The utility function is assumed to be non-negative and unbounded from above. The novel feature in our framework is that…
It is challenging to quantify numerical preferences for different objectives in a multi-objective decision-making problem. However, the demonstrations of a user are often accessible. We propose an algorithm to infer linear preference…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
Financial models are studied where each asset may potentially lose value relative to any other. Conditioning on non-devaluation, each asset can serve as proper num\'eraire and classical valuation rules can be formulated. It is shown when…
In this paper we study a representation problem first considered in a simpler version by Bank and El Karoui [2004]. A key ingredient to this problem is a random measure $\mu$ on the time axis which in the present paper is allowed to have…
Environments with fixed adjustment costs such as transaction costs or \lq menu costs\rq$ $ are widespread within economic systems. The presence of fixed minimal adjustment costs produces adjustment stickiness so that agents must choose a…
We initiate a novel direction in randomized social choice by proposing a new definition of agent utility for randomized outcomes. Each agent has a preference over all outcomes and a {\em quantile} parameter. Given a {\em lottery} over the…
We study the problem of a planner who resolves risk-return trade-offs - like financial investment decisions - on behalf of a collective of agents with heterogeneous risk preferences. The planner's objective is a two-stage utility functional…