Related papers: Money Pumps and Bounded Rationality
We propose a new approach to utilities that is consistent with state-dependent utilities. In our model utilities reflect the level of consumption satisfaction of flows of cash in future times as they are valued when the economic agents are…
A rational bubble is a situation in which the asset price exceeds its fundamental value defined by the present discounted value of dividends in a rational equilibrium model. We discuss the recent development of the theory of rational…
We perform a stability analysis for the utility maximization problem in a general semimartingale model where both liquid and illiquid assets (random endowments) are present. Small misspecifications of preferences (as modeled via expected…
Although many investigators affirm a desire to build reasoning systems that behave consistently with the axiomatic basis defined by probability theory and utility theory, limited resources for engineering and computation can make a complete…
In this paper the theory of flexibly-bounded rationality which is an extension to the theory of bounded rationality is revisited. Rational decision making involves using information which is almost always imperfect and incomplete together…
We propose a continuous-time nonlinear model of opinion dynamics with utility-maximizing agents connected via a social influence network. A distinguishing feature of the proposed model is the inclusion of an opinion-dependent…
The aim of this short note is to establish a limit theorem for the optimal trading strategies in the setup of the utility maximization problem with proportional transaction costs. This limit theorem resolves the open question from [4]. The…
Reputation mechanisms offer an effective alternative to verification authorities for building trust in electronic markets with moral hazard. Future clients guide their business decisions by considering the feedback from past transactions;…
Motivated by the analysis of a general optimal portfolio selection problem, which encompasses as special cases an optimal consumption and an optimal debt-arrangement problem, we are concerned with the questions of how a personality trait…
The problem of designing a profit-maximizing, Bayesian incentive compatible and individually rational mechanism with flexible consumers and costly heterogeneous supply is considered. In our setup, each consumer is associated with a…
We consider the robust utility maximization using a static holding in derivatives and a dynamic holding in the stock. There is no fixed model for the price of the stock but we consider a set of probability measures (models) which are not…
We study random utility (RU) rationality with aggregation when the underlying alternatives in each aggregate vary across consumers and are unobserved, as is typical for an outside option. RUM over the underlying alternatives is the natural…
Mechanism design is now a standard tool in computer science for aligning the incentives of self-interested agents with the objectives of a system designer. There is, however, a fundamental disconnect between the traditional application…
This chapter presents probability logic as a rationality framework for human reasoning under uncertainty. Selected formal-normative aspects of probability logic are discussed in the light of experimental evidence. Specifically, probability…
In this paper, we study expected utility maximization under ratchet and drawdown constraints on consumption in a general incomplete semimartingale market using duality methods. The optimization is considered with respect to two parameters:…
Game theoretic equilibria are mathematical expressions of rationality. Rational agents are used to model not only humans and their software representatives, but also organisms, populations, species and genes, interacting with each other and…
The rise of smart applications has drawn interest to logical reasoning over data streams. Recently, different query languages and stream processing/reasoning engines were proposed in different communities. However, due to a lack of…
This paper proposes a suite of rationality measures and associated theory for reinforcement learning agents, a property increasingly critical yet rarely explored. We define an action in deployment to be perfectly rational if it maximises…
Towards the realization of a sustainable, fair and inclusive society, we proposed a novel decision-making model that incorporates social norms in a rational choice model from the standpoints of deontology and utilitarianism. We proposed a…
We characterize optimal monetary policy when policy endogenously moves risk premia through redistribution across agents who differ in their willingness to bear risk. The analytical core is Marginal Risk Capacity, the covariance of monetary…