Related papers: Money Pumps and Bounded Rationality
Humans are not homo economicus (i.e., rational economic beings). As humans, we exhibit systematic behavioral biases such as loss aversion, anchoring, framing, etc., which lead us to make suboptimal economic decisions. Insofar as such biases…
We study a setting where an analyst has access to purely aggregate information about the consumption choices of a heterogenous population of individuals. We show that observing the statistical moments of market demand allows the analyst to…
We study the utility maximization problem for power utility random fields in a semimartingale financial market, with and without intermediate consumption. The notion of an opportunity process is introduced as a reduced form of the value…
This article expands Milton Friedman's spending matrix to analyse 'spending efficiency' and 'preference compatibility' across different economic systems against five key outcome criteria. By generalising Friedman's typology, it compares…
The real monetary economy is grounded upon monetary flow equilibration or the activity of actualizing monetary flow continuity at each economic agent except for the central bank. Every update of monetary flow continuity at each agent…
Recent literature in the last Maximum Entropy workshop introduced an analogy between cumulative probability distributions and normalized utility functions. Based on this analogy, a utility density function can de defined as the derivative…
We consider a continuous-time market with proportional transaction costs. Under appropriate assumptions we prove the existence of optimal strategies for investors who maximize their worst-case utility over a class of possible models. We…
A perfectly rational decision-maker chooses the best action with the highest utility gain from a set of possible actions. The optimality principles that describe such decision processes do not take into account the computational costs of…
In this note, we explicitly solve the problem of maximizing utility of consumption (until the minimum of bankruptcy and the time of death) with a constraint on the probability of lifetime ruin, which can be interpreted as a risk measure on…
To choose between two discrete goods, a consumer pays attention to only those with prices below a threshold. From these, she chooses her most preferred good. We assume consumers in a population have the same preference but may have…
We propose a new measure of deviations from expected utility theory. For any positive number~$e$, we give a characterization of the datasets with a rationalization that is within~$e$ (in beliefs, utility, or perceived prices) of expected…
While traditional economics assumes that humans are fully rational agents who always maximize their expected utility, in practice, we constantly observe apparently irrational behavior. One explanation is that people have limited…
The consideration of nonstandard models of the real numbers and the definition of a qualitative ordering on those models provides a generalization of the principle of maximization of expected utility. It enables the decider to assign…
The existence of optimal strategy in robust utility maximization is addressed when the utility function is finite on the entire real line. A delicate problem in this case is to find a "good definition" of admissible strategies, so that an…
Common knowledge/belief in rationality is the traditional standard assumption in analysing interaction among agents. This paper proposes a graph-based language for capturing significantly more complicated structures of higher-order beliefs…
The Random Utility Model (RUM) is the leading model to represent the aggregate choices of a heterogeneous population of preference maximizers. We show that if (and only if) preferences are sufficiently uncorrelated, RUM choices can also be…
We consider a stochastic optimal control problem in a market model with temporary and permanent price impact, which is related to an expected utility maximization problem under finite fuel constraint. We establish the initial condition…
Large language models (LLMs), a recent advance in deep learning and machine intelligence, have manifested astonishing capacities, now considered among the most promising for artificial general intelligence. With human-like capabilities,…
The Random Utility Model (RUM) is the gold standard in describing the behavior of a population of consumers. The RUM operates under the assumption of transitivity in consumers' preference relationships, but the empirical literature has…
Classic decision-theory is based on the maximum expected utility (MEU) principle, but crucially ignores the resource costs incurred when determining optimal decisions. Here we propose an axiomatic framework for bounded decision-making that…