Related papers: Bounded arbitrage and nearly rational behavior

"Fundamental theorem of asset pricing" roughly states that absence of arbitrage opportunity in a market is equivalent to the existence of a risk-neutral probability. We give a simple counterexample to this oversimplified statement. Prices…

The paper studies the concepts of hedging and arbitrage in a non probabilistic framework. It provides conditions for non probabilistic arbitrage based on the topological structure of the trajectory space and makes connections with the usual…

We examine behavioral axioms in decision theory that are satisfied approximately rather than exactly. We demonstrate that in key domains -- decisions under risk, uncertainty, and intertemporal choice -- behavior that \emph{almost} satisfies…

This paper studies relative arbitrage opportunities in a market with competitive investors through stochastic differential games in the limit as the number of players tends to infinity. With common noises introduced by the stock…

We generalize the stochastic revealed preference methodology of McFadden and Richter (1990) for finite choice sets to settings with limited consideration. Our approach is nonparametric and requires partial choice set variation. We impose a…

We show that in a financial market given by semimartingales an arbitrage opportunity, provided it exists, can only be exploited through short selling. This finding provides a theoretical basis for differences in regulation for financial…

We consider 2-player games played on a finite state space for infinite rounds. The games are concurrent: in each round, the two players choose their moves simultaneously; the current state and the moves determine the successor. We consider…

The principle that rational agents should maximize expected utility or choiceworthiness is intuitively plausible in many ordinary cases of decision-making under uncertainty. But it is less plausible in cases of extreme, low-probability risk…

In this paper, we present a generalization of the certainty equivalence principle of stochastic control. One interpretation of the classical certainty equivalence principle for linear systems with output feedback and quadratic costs is as…

We derive the most probable distribution of resources for a simple society. We find that a probabilistic analysis forbids both too much and too less equity, and selects instead a minimally ordered state. We give the detailed calculations…

In this paper we provide a quantitative analysis to the concept of arbitrage, that allows to deal with model uncertainty without imposing the no-arbitrage condition. In markets that admit ``small arbitrage", we can still make sense of the…

In a discrete-time setting, we study arbitrage concepts in the presence of convex trading constraints. We show that solvability of portfolio optimization problems is equivalent to absence of arbitrage of the first kind, a condition weaker…

Bounded rationality, that is, decision-making and planning under resource limitations, is widely regarded as an important open problem in artificial intelligence, reinforcement learning, computational neuroscience and economics. This paper…

Coordination is a desirable feature in many multi-agent systems such as robotic and socioeconomic networks. We consider a task allocation problem as a binary networked coordination game over an undirected regular graph. Each agent in the…

We characterize absence of arbitrage with simple trading strategies in a discounted market with a constant bond and several risky assets. We show that if there is a simple arbitrage, then there is a 0-admissible one or an obvious one, that…

This study proposes a new efficiency requirement, a minimal almost weak Pareto principle, which says that x is socially better than y whenever the only one individual never prefers y to x, and all the others prefers x to y. Then, I show…

When robots share the same workspace with other intelligent agents (e.g., other robots or humans), they must be able to reason about the behaviors of their neighboring agents while accomplishing the designated tasks. In practice,…

This paper studies preference aggregation under risk. In our model, each agent has an incomplete preference relation represented by a set of expected utility functions. The classical Pareto principle is silent on agreement involving…

Subjective expected utility theory assumes that decision-makers possess unlimited computational resources to reason about their choices; however, virtually all decisions in everyday life are made under resource constraints - i.e.…

In this study we prove the existence of statistical arbitrage opportunities in the Black-Scholes framework by considering trading strategies that consists of borrowing from the risk free rate and taking a long position in the stock until it…