Related papers: Elasticity theory of structuring
Metastability is a phenomenon observed in stochastic systems which stay in a false-equilibrium within a region of its state space until the occurrence of a sequence of rare events that leads to an abrupt transition to a different region.…
We propose a game-theoretic framework that incorporates both incomplete information and general ambiguity attitudes on factors external to all players. Our starting point is players' preferences on payoff-distribution vectors, essentially…
Consequential decision-making incentivizes individuals to strategically adapt their behavior to the specifics of the decision rule. While a long line of work has viewed strategic adaptation as gaming and attempted to mitigate its effects,…
Quantitative measures of randomness in games are useful for game design and have implications for gambling law. We treat the outcome of a game as a random variable and derive a closed-form expression and estimator for the variance in the…
Financial options are contracts that specify the right to buy or sell an underlying asset at a strike price by an expiration date. Standard exchanges offer options of predetermined strike values and trade options of different strikes…
In this paper the problem of optimal derivative design, profit maximization and risk minimization under adverse selection when multiple agencies compete for the business of a continuum of heterogenous agents is studied. The presence of ties…
In this paper we characterise the propensity of big capital investments to systematically deliver poor outcomes as "fragility," a notion suggested by Nassim Taleb. A thing or system that is easily harmed by randomness is fragile. We argue…
This review is about the convenience, the benefits, as well as the destructive capacities of money. It deals with various aspects of money creation, with its value, and its appropriation. All sorts of money tend to get corrupted by…
Affordance theory proposes that the use of an object is intrinsically determined by its physical shape. However, when translated to digital objects, affordance theory loses explanatory power, as the same physical affordances, for example,…
Diversification represents the idea of choosing variety over uniformity. Within the theory of choice, desirability of diversification is axiomatized as preference for a convex combination of choices that are equivalently ranked. This…
In game theory, mechanism design is concerned with the design of incentives so that a desired outcome of the game can be achieved. In this paper, we study the design of incentives so that a desirable equilibrium is obtained, for instance,…
This paper examines the impact of cognitive biases on financial decision-making through a static Bayesian game framework. While traditional economic theory assumes fully rational investors, real-world choices are often shaped by loss…
In this paper we put forward the viewpoint that the notion of stress testing financial institutions and engineered systems can also be made viable appropos the stress testing an individual's strength of conviction in a probability…
We study the origins of the $\sqrt{dt}$ effect in finance and SDE. In particular, we show, in the game-theoretic framework, that market volatility is a consequence of the absence of riskless opportunities for making money and that too high…
In both finance and economics, quantitative models are usually studied as isolated mathematical objects --- most often defined by very strong simplifying assumptions concerning rationality, efficiency and the existence of disequilibrium…
We introduce open games as a compositional foundation of economic game theory. A compositional approach potentially allows methods of game theory and theoretical computer science to be applied to large-scale economic models for which…
Simultaneous reproduction of all financial stylized facts is so difficult that most existing stochastic process-based and agent-based models are unable to achieve the goal. In this study, by extending the decision-making structure of…
Two losing gambling games, when alternated in a periodic or random fashion, can produce a winning game. This paradox has been inspired by certain physical systems capable of rectifying fluctuations: the so-called Brownian ratchets. In this…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
Mechanism design is a well-established game-theoretic paradigm for designing games to achieve desired outcomes. This paper addresses a closely related but distinct concept, equilibrium design. Unlike mechanism design, the designer's…