Related papers: The time interpretation of expected utility theory
Different models to study the wealth distribution in an artificial society have considered a transactional dynamics as the driving force. Those models include a risk aversion factor, but also a finite probability of favoring the poorer…
Standard approaches to the theory of financial markets are based on equilibrium and efficiency. Here we develop an alternative based on concepts and methods developed by biologists, in which the wealth invested in a financial strategy is…
Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…
This paper considers the portfolio management problem of optimal investment, consumption and life insurance. We are concerned with time inconsistency of optimal strategies. Natural assumptions, like different discount rates for consumption…
The purpose of this paper is to study the time average behavior of Markov chains with transition probabilities being kernels of completely continuous operators, and therefore to provide a sufficient condition for a class of Markov chains…
Drifts of asset returns are notoriously difficult to model accurately and, yet, trading strategies obtained from portfolio optimization are very sensitive to them. To mitigate this well-known phenomenon we study robust growth-optimization…
Standard macroeconomic models assume that households are rational in the sense that they are perfect utility maximizers, and explain economic dynamics in terms of shocks that drive the economy away from the stead-state. Here we build on a…
Models of adaptive bet-hedging commonly adopt insights from Kelly's famous work on optimal gambling strategies and the financial value of information. In particular, such models seek evolutionary solutions that maximize long term average…
The agent-based Yard-Sale model of wealth inequality is generalized to incorporate exponential economic growth and its distribution. The distribution of economic growth is nonuniform and is determined by the wealth of each agent and a…
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…
Cooperation between individuals is emergent in all parts of society, yet mechanistic reasons for this emergence is ill understood in the literature. A specific example of this is insurance. Recent work has, though, shown that assuming the…
Wealth inequality is an important matter for economic theory and policy. Ongoing debates have been discussing recent rise in wealth inequality in connection with recent development of active financial markets around the world. Existing…
We propose a set of conservative models in which agents exchange wealth with a preference in the choice of interacting agents in different ways. The common feature in all the models is that the temporary values of financial status of agents…
We present an agent-based model of microscopic wealth exchange in a dynamic network to study the topological features associated with economic inequality. The model evolves through two alternating processes, the conservative exchange of…
This paper studies the trading volumes and wealth distribution of a novel agent-based model of an artificial financial market. In this model, heterogeneous agents, behaving according to the Von Neumann and Morgenstern utility theory, may…
Noncooperative games with uncertain payoffs have been classically studied under the expected-utility theory framework, which relies on the strong assumption that agents behave rationally. However, simple experiments on human decision makers…
We establish fundamental connections between utility theories of wealth from the economic sciences and information-theoretic quantities. In particular, we introduce operational tasks based on betting where both gambler and bookmaker have…
We present and analyze a model for the evolution of the wealth distribution within a heterogeneous economic environment. The model considers a system of rational agents interacting in a game theoretical framework, through fairly general…
Assuming that agents' preferences satisfy first-order stochastic dominance, we show how the Expected Utility paradigm can rationalize all optimal investment choices: the optimal investment strategy in any behavioral law-invariant…
This paper studies the income fluctuation problem with capital income risk (i.e., dispersion in the rate of return to wealth). Wealth returns and labor earnings are allowed to be serially correlated and mutually dependent. Rewards can be…