Related papers: The time interpretation of expected utility theory
The "standard" Merton formulation of optimal investment and consumption involves optimizing the integrated lifetime utility of consumption, suitably discounted, together with the discounted future bequest. In this formulation the utility of…
We consider a risk-sensitive optimization of consumption-utility on infinite time horizon where the one-period investment gain depends on an underlying economic state whose evolution over time is assumed to be described by a discrete-time,…
We propose a stochastic model of evolution of wealth in a society of economic agents. In the model, an agent can be in two states: inactive and active. Transitions between the states occur at random time intervals. In the active state, the…
We investigate activities that have different periods of duration. We define the profit intensity as a measure of this economic category. The profit intensity in a repeated trading has a unique property of attaining its maximum at a fixed…
Cooperation is a persistent behavioral pattern of entities pooling and sharing resources. Its ubiquity in nature poses a conundrum. Whenever two entities cooperate, one must willingly relinquish something of value to the other. Why is this…
This paper studies the problem of maximizing expected utility from terminal wealth combining a static position in derivative securities, which we assume can be traded only at time zero, with a traditional dynamic trading strategy in stocks.…
If wealthier people have advantages in having higher returns than poor, inequality will unequivocally increase, but is equal opportunity enough to prevent it? According to several models in economics and econophysics, no. They all display…
We consider the robust exponential utility maximization problem in discrete time: An investor maximizes the worst case expected exponential utility with respect to a family of nondominated probabilistic models of her endowment by…
The law of proportionate growth simply states that the time dependent change of a quantity $x$ is proportional to $x$. Its applicability to a wide range of dynamic phenomena is based on various assumptions for the proportionality factor,…
The determinants of the velocity of money have been examined based on life-cycle hypothesis. The velocity of money can be expressed by reciprocal of the average value of holding time which is defined as interval between participating…
A dynamical model of capital exchange is introduced in which a specified amount of capital is exchanged between two individuals when they meet. The resulting time dependent wealth distributions are determined for a variety of exchange…
Organizations consist of individuals connected by their responsibilities, incentives, and reporting structure. These connections are aptly represented by a network, hierarchical or other, which is often used to divide tasks. A primary goal…
We study investment and insurance demand decisions for an agent in a theoretical continuous-time expected utility maximization model that combines risky assets with an (exogenous) insurable background risk. This risk takes the form of a…
Modern ecology has re-emphasized the need for a quantitative understanding of the original 'survival of the fittest theme' based on analyzis of the intricate trade-offs between competing evolutionary strategies that characterize the…
We develop information theory for the temporal behavior of memoryful agents moving through complex -- structured, stochastic -- environments. We introduce and explore information processes -- stochastic processes produced by cognitive…
In this working paper, I developed a suite of macroeconomic models that shed light on the intricate relationship between economic development, health, and fertility. These innovative models conceptualize health as an intermediate good,…
The aim of this short note is to present a solution to the discrete time exponential utility maximization problem in a case where the underlying asset has a multivariate normal distribution. In addition to the usual setting considered in…
In this review article we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions…
We consider an expected utility maximization problem where the utility function is not necessarily concave and the time horizon is uncertain. We establish a necessary and sufficient condition for the optimality for general non-concave…
People often deviate from expected utility theory when making risky and intertemporal choices. While the effects of probabilistic risk and time delay have been extensively studied in isolation, their interplay and underlying theoretical…