Related papers: The time interpretation of expected utility theory
Ergodicity describes an equivalence between the expectation value and the time average of observables. Applied to human behaviour, ergodic theories of decision-making reveal how individuals should tolerate risk in different environments. To…
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…
Gambles are random variables that model possible changes in monetary wealth. Classic decision theory transforms money into utility through a utility function and defines the value of a gamble as the expectation value of utility changes.…
An important but understudied question in economics is how people choose when facing uncertainty in the timing of events. Here we study preferences over time lotteries, in which the payment amount is certain but the payment time is…
A growing body of empirical evidence suggests that the dynamics of wealth within a population tends to be non-ergodic, even after rescaling the individual wealth with the population average. Despite these discoveries, the way in which…
In modern portfolio theory, the balancing of expected returns on investments against uncertainties in those returns is aided by the use of utility functions. The Kelly criterion offers another approach, rooted in information theory, that…
In the large financial market, which is described by a model with countably many traded assets, we formulate the problem of the expected utility maximization. Assuming that the preferences of an economic agent are modeled with a stochastic…
In ergodic physical systems, time-averaged quantities converge (for large times) to their ensemble-averaged values. Large deviation theory describes rare events where these time averages differ significantly from the corresponding ensemble…
Economic growth is measured as the rate of relative change in gross domestic product (GDP) per capita. Yet, when incomes follow random multiplicative growth, the ensemble-average (GDP per capita) growth rate is higher than the time-average…
We construct a model of an exchange economy in which agents trade assets contingent on an observable signal, the probability of which depends on public opinion. The agents in our model are replaced occasionally and each person updates…
This paper builds a rule for decisionmaking from the physical behavior of single neurons, the well established neural circuitry of mutual inhibition, and the evolutionary principle of natural selection. No axioms are used in the derivation…
We investigate the relation between economic growth and equality in a modified version of the agent-based asset exchange model (AEM). The modified model is a driven system that for a range of parameter space is effectively ergodic in the…
In reinforcement learning, we typically aim to optimize the expected value of the sum of rewards an agent collects over a trajectory. However, if the process generating these rewards is non-ergodic, the expected value, i.e., the average…
This paper introduces Experiential Matrix Theory (EMT), a general theory of growth, employment, and technological change for the age of artificial intelligence (AI). EMT redefines utility as the alignment between production and an evolving,…
We investigate the ergodic problem of growth-rate maximization under a class of risk constraints in the context of incomplete, It\^{o}-process models of financial markets with random ergodic coefficients. Including {\em value-at-risk}…
The expected utility hypothesis is a popular concept in economics that is useful for making decisions when the payoff is uncertain. In this paper, we investigate the implications of a fluctuation theorem in the theory of expected utility.…
We study an agent-based model of evolution of wealth distribution in a macro-economic system. The evolution is driven by multiplicative stochastic fluctuations governed by the law of proportionate growth and interactions between agents. We…
Based on interactions between individuals and others and references to social norms, this study reveals the impact of heterogeneity in time preference on wealth distribution and inequality. We present a novel approach that connects the…
We consider a control problem for a heterogeneous population composed of agents able to switch at any time between different options. The controller aims to maximize an average gain per time unit, supposing that the population is 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…