Related papers: Evaluating gambles using dynamics
In this paper we study the dynamics and ergodic theory of certain economic models which are implicitly defined. We consider 1-dimensional and 2-dimensional overlapping generations models, a cash-in-advance model, heterogeneous markets and a…
Econometrics is based on the nonempiric notion of utility. Prices, dynamics, and market equilibria are supposed to be derived from utility. Utility is usually treated by economists as a price potential, other times utility rates are treated…
We adress the maximization problem of expected utility from terminal wealth. The special feature of this paper is that we consider a financial market where the price process of risky assets can have a default time. Using dynamic…
Using results from neurobiology on perceptual decision making and value-based decision making, the problem of decision making between lotteries is reformulated in an abstract space where uncertain prospects are mapped to corresponding…
Probability forecasts are intended to account for the uncertainties inherent in forecasting. It is suggested that from an end-user's point of view probability is not necessarily sufficient to reflect uncertainties that are not simply the…
Behavioural economics provides labels for patterns in human economic behaviour. Probability weighting is one such label. It expresses a mismatch between probabilities used in a formal model of a decision (i.e. model parameters) and…
We consider the problem of maximizing expected utility from terminal wealth in models with stochastic factors. Using martingale methods and a conditioning argument, we determine the optimal strategy for power utility under the assumption…
Evolutionary game theory is a successful mathematical framework geared towards understanding the selective pressures that affect the evolution of the strategies of agents engaged in interactions with potential conflicts. While a…
In this paper, we establish a mathematical duality between utility transforms and probability distortions. These transforms play a central role in decision under risk by forming the foundation for the classic theories of expected utility,…
Rewards typically express desirabilities or preferences over a set of alternatives. Here we propose that rewards can be defined for any probability distribution based on three desiderata, namely that rewards should be real-valued, additive…
We analyze characteristics' joint predictive information through the lens of out-of-sample power utility functions. Linking weights to characteristics to form optimal portfolios suffers from estimation error which we mitigate by maximizing…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
Game theory relies heavily on the availability of cardinal utility functions, but in fields such as matching markets, only ordinal preferences are typically elicited. The literature focuses on mechanisms with simple dominant strategies, but…
Game theory is the standard tool used to model strategic interactions in evolutionary biology and social science. Traditional game theory studies the equilibria of simple games. But is traditional game theory applicable if the game is…
I provide necessary and sufficient conditions for an agent's preferences to be represented by a unique ergodic transformation. Put differently, if an agent seeks to maximize the time average growth of their wealth, what axioms must their…
Game logic is a dynamic modal logic which models strategic two person games; it contains propositional dynamic logic (PDL) as a fragment. We propose an interpretation of game logic based on stochastic effectivity functions. A definition of…
A dynamic model of collective consumption and saving decisions made by a finite number of agents with constant but different discount rates is developed. Collective utility is a weighted sum of individual utilities with time-varying utility…
We introduce an evolutionary game with feedback between perception and reality, which we call the reality game. It is a game of chance in which the probabilities for different objective outcomes (e.g., heads or tails in a coin toss) depend…
This article derives prognostic expressions for the evolution of globally aggregated economic wealth, productivity, inflation, technological change, innovation and growth. The approach is to treat civilization as an open, non-equilibrium…
This paper addresses the problem of utility maximization under uncertain parameters. In contrast with the classical approach, where the parameters of the model evolve freely within a given range, we constrain them via a penalty function. We…