Related papers: The time interpretation of expected utility theory
Evolutionary graph theory is a well established framework for modelling the evolution of social behaviours in structured populations. An emerging consensus in this field is that graphs that exhibit heterogeneity in the number of connections…
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…
We study a discrete-time consumption-based capital asset pricing model under expectations-based reference-dependent preferences. More precisely, we consider an endowment economy populated by a representative agent who derives utility from…
We implement nonparametric revealed-preference tests of subjective expected utility theory and its generalizations. We find that a majority of subjects' choices are consistent with the maximization of some utility function. They respond to…
Heterogeneous diffusion processes can be well described by an overdamped Langevin equation with space-dependent diffusivity $D(x)$. We investigate the ergodic and non-ergodic behavior of these processes in an arbitrary potential well $U(x)$…
Random walk models, such as the trap model, continuous time random walks, and comb models exhibit weak ergodicity breaking, when the average waiting time is infinite. The open question is: what statistical mechanical theory replaces the…
We develop a model for the evolution of wealth in a non-conservative economic environment, extending a theory developed earlier by the authors. The model considers a system of rational agents interacting in a game theoretical framework.…
Cultures around the world show varying levels of conservatism. While maintaining traditional ideas prevents wrong ones from being embraced, it also slows or prevents adaptation to new times. Without exploration there can be no improvement,…
By embedding uncertainty into time, we obtain a conjoint axiomatic characterization of both Exponential Discounting and Subjective Expected Utility that accommodates arbitrary state and outcome spaces. In doing so, we provide a novel and…
Due to the increasing popularity of futures trading among financial market participants, the risk management of these instruments is crucial. In this paper, we introduce a model for estimating the ideal time for leaving a trading position…
Summarized by the efficient market hypothesis, the idea that stock prices fully reflect all available information is always confronted with the behavior of real-world markets. While there is plenty of evidence indicating and quantifying the…
Perfectly rational decision-makers maximize expected utility, but crucially ignore the resource costs incurred when determining optimal actions. Here we employ an axiomatic framework for bounded rational decision-making based on a…
We strengthen the maximal ergodic theorem for actions of groups of polynomial growth to a form involving jump quantity, which is the sharpest result among the family of variational or maximal ergodic theorems. As a consequence, we deduce in…
We study the problem of maximising terminal utility for an agent facing model uncertainty, in a frictionless discrete-time market with one safe asset and finitely many risky assets. We show that an optimal investment strategy exists if the…
A class of heterogeneous agent models is investigated where investors switch trading position whenever their motivation to do so exceeds some critical threshold. These motivations can be psychological in nature or reflect behaviour…
Motivated by several classic decision-theoretic paradoxes, and by analogies with the paradoxes which in physics motivated the development of quantum mechanics, we introduce a projective generalization of expected utility along the lines of…
This paper studies an optimal investment and consumption problem with heterogeneous consumption of basic and luxury goods, together with the choice of time for retirement. The utility for luxury goods is not necessarily a concave function.…
We consider a heterogeneous agent-based economic model where economic agents have strictly bounded rationality and where income allocation strategies evolve through selective imitation. Income is calculated by a Cobb-Douglas type production…
For a stochastic factor model we maximize the long-term growth rate of robust expected power utility with parameter $\lambda\in(0,1)$. Using duality methods the problem is reformulated as an infinite time horizon, risk-sensitive control…
This brief pedagogical note re-proves a simple theorem on the convergence, in $L_2$ and in probability, of time averages of non-stationary time series to the mean of expectation values. The basic condition is that the sum of covariances…