Related papers: Money Pumps and Bounded Rationality
We consider finite information structures, and quest for the answer of the question: What is the proper definition of prior? In the single player setting we conclude that a probability distribution is a prior if it is disintegrable, because…
Completeness and transitivity are standard rationality conditions in economics. However, under ambiguity, decision makers sometimes violate these requirements because of the difficulty of forming accurate predictions about ambiguous events.…
Two main approaches for evaluating the quality of machine-generated rationales are: 1) using human rationales as a gold standard; and 2) automated metrics based on how rationales affect model behavior. An open question, however, is how…
This work discusses how to build more rational language and multimodal agents and what criteria define rationality in intelligent systems. Rationality is the quality of being guided by reason, characterized by decision-making that aligns…
In this paper we extend the stability results of [4]}. Our utility maximization problem is defined as an essential supremum of conditional expectations of the terminal values of wealth processes, conditioned on the filtration at the…
In the theory of social choice the research is focused around the projection of individual preference orders to the social preference order. Also, the justification of the preference order formalism begins with the concept of utility i.e.…
All possible types of deterministic choice behavior are classified by their degree of irrationality. This classification is performed in three steps: (1) select a benchmark of rationality, for which this degree is zero; (2) endow the set of…
The institution of money can be seen as a foundational social mechanism, enabling communities to quantify collectively regulate economic processes. Money can be said, indeed, to constitute the micro-macro link in economics. This paper…
The aim of this of this paper is to study infinite games and to prove formally some properties in this framework. As a consequence we show that the behavior (the madness) of people which leads to speculative crashes or escalation can be…
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…
As large language models (LLMs) like GPT become increasingly prevalent, it is essential that we assess their capabilities beyond language processing. This paper examines the economic rationality of GPT by instructing it to make budgetary…
This paper is an original attempt to understand the foundations of economic reasoning. It endeavors to rigorously define the relationship between subjective interpretations and objective valuations of such interpretations in the context of…
In the large financial market, which is described by a model with countably many traded assets, we formulate the problem of the expected utility maximization. Assuming that the preferences of an economic agent are modeled with a stochastic…
Expected utility maximization problems in mathematical finance lead to a generalization of the classical definition of entropy. It is demonstrated that a necessary and sufficient condition for the second law of thermodynamics to operate is…
The maximum entropy principle can be used to assign utility values when only partial information is available about the decision maker's preferences. In order to obtain such utility values it is necessary to establish an analogy between…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
Functions or 'functionings' enable to give a structure to any activity and their combinations constitute the capabilities which characterize economic assets such as work utility. The basic law of supply and demand naturally emerges from…
A model for decision making that generalizes Expected Utility Maximization is presented. This model, Expected Qualitative Utility Maximization, encompasses the Maximin criterion. It relaxes both the Independence and the Continuity…
Nonmonotonic reasoning is a pattern of reasoning that allows an agent to make and retract (tentative) conclusions from inconclusive evidence. This paper gives a possible-worlds interpretation of the nonmonotonic reasoning problem based on…
"Rational bubble", as introduced by the famous paper on money by Samuelson (1958), means speculation backed by nothing. The large subsequent rational bubble literature has identified attaching bubbles to dividend-paying assets in a natural…