Related papers: The professional trader's paradox
I think we can agree that dealing with uncertainty is not easy. Probability is the main tool for dealing with uncertainty, and we know there are many probability-related puzzles and paradoxes. Here I describe a rather idiosyncratic…
Chances of a gambler are always lower than chances of a casino in the case of an ideal, mathematically perfect roulette, if the capital of the gambler is limited and the minimum and maximum allowed bets are limited by the casino. However, a…
The paper studies one-shot two-player games with non-Bayesian uncertainty. The players have an attitude that ranges from optimism to pessimism in the face of uncertainty. Given the attitudes, each player forms a belief about the set of…
We consider strategies of investments into options and diffusion market model. It is shown that there exists a correct proportion between "put" and "call" in the portfolio such that the average gain is almost always positive for a generic…
We study bilateral trade with interdependent values as an informed-principal problem. The mechanism-selection game has multiple equilibria that differ with respect to principal's payoff and trading surplus. We characterize the equilibrium…
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…
In a prediction market, individuals can sequentially place bets on the outcome of a future event. This leaves a trail of personal probabilities for the event, each being conditional on the current individual's private background knowledge…
A simple model for cooperation between "selfish" agents, which play an extended version of the Prisoner's Dilemma(PD) game, in which they use arbitrary payoffs, is presented and studied. A continuous variable, representing the probability…
Cooperative Parrondo's games on a regular two dimensional lattice are analyzed based on the computer simulations and on the discrete-time Markov chain model with exact transition probabilities. The paradox appears in the vicinity of the…
Consider a gambler and a prophet who observe a sequence of independent, non-negative numbers. The gambler sees the numbers one-by-one whereas the prophet sees the entire sequence at once. The goal of both is to decide on fractions of each…
Toral introduced so-called cooperative Parrondo games, in which there are N players (3 or more) arranged in a circle. At each turn one player is randomly chosen to play. He plays either game A or game B, depending on the strategy. Game A…
The iterated prisoner's dilemma is a game that produces many counter-intuitive and complex behaviors in a social environment, based on very simple basic rules. It illustrates that cooperation can be a good thing even in a competitive world,…
Parrondo's paradox is ubiquitous in games, ratchets and random walks.The apparent paradox, devised by J.~M.~R.~Parrondo, that two losing games $A$ and $B$ can produce an winning outcome has been adapted in many physical and biological…
We study a phenomenological model for the continuous double auction, equivalent to two independent $M/M/1$ queues. The continuous double auction defines a continuous-time random walk for trade prices. The conditions for ergodicity of the…
We introduce and analyze a variation of the Bertrand game in which the revenue is shared between two players. This game models situations in which one economic agent can provide goods/services to consumers either directly or through an…
A range of empirical puzzles in finance has been explained as a consequence of traders being averse to ambiguity. Ambiguity averse traders can behave in financial portfolio problems in ways that cannot be rationalized as maximizing…
We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and…
I'll discuss how Goedel's paradox "This statement is false/unprovable" yields his famous result on the limits of axiomatic reasoning. I'll contrast that with my work, which is based on the paradox of "The first uninteresting positive whole…
Empirical evidence suggests that even the most competitive markets are not strictly efficient. Price histories can be used to predict near future returns with a probability better than random chance. Many markets can be considered as {\it…
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.…