Related papers: The Relationship between Consumer Theories with an…
In a financial market with a continuous price process and proportional transaction costs we investigate the problem of utility maximization of terminal wealth. We give sufficient conditions for the existence of a shadow price process,…
As a unified theory of sentient behaviour, active inference is formally intertwined with multiple normative theories of optimal behaviour. Specifically, we address what we call the subsumption thesis: The claim that expected utility from…
We study a robust stochastic optimization problem in the quasi-sure setting in discrete-time. We show that under a lineality-type condition the problem admits a maximizer. This condition is implied by the no-arbitrage condition in models of…
In this paper, we work in the framework of the Merton problem but we impose a drawdown constraint on the consumption process. This means that consumption can never fall below a fixed proportion of the running maximum of past consumption. In…
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…
In this paper we study utility maximization with proportional transaction costs. Assuming extended weak convergence of the underlying processes we prove the convergence of the corresponding utility maximization problems. Moreover, we…
Bilateral trade is one of the most natural and important forms of economic interaction: A seller has a single, indivisible item for sale, and a buyer is potentially interested. The two parties typically have different, privately known…
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…
This paper presents four theorems that connect continuity postulates in mathematical economics to solvability axioms in mathematical psychology, and ranks them under alternative supplementary assumptions. Theorem 1 connects notions of…
We study a dynamic random utility model that allows for consumption dependence. We axiomatically analyze this model and find insights that allow us to distinguish between behavior that arises due to consumption dependence and behavior that…
This work takes up the challenges of utility maximization problem when the market is indivisible and the transaction costs are included. First there is a so-called solvency region given by the minimum margin requirement in the problem…
We formulate and solve a deterministic optimal consumption problem to maximize the discounted CRRA utility of an individual's consumption-to-habit process assuming she only invests in a riskless market and that she is unwilling to consume…
We consider a problem of optimal investment with intermediate consumption in the framework of an incomplete semimartingale model of a financial market. We show that a necessary and sufficient condition for the validity of key assertions of…
The state of economic theory and accumulated facts from the different branches of the economic science require to analyze the concept of the description of economy systems. The economic reality generates the problems the solution of that is…
In the present work we develop a formalism to tackle the problem of optimal execution when trading market securities. More precisely, we introduce a utility function that balances market impact and timing risk, with this last being modelled…
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…
We provide simple models for the utility function (or psychology) of an actor trading a multitude of goods for money. In this framework, money has no intrinsic consumption value, but is required as a medium of exchange. A collection of such…
We provide a detailed characterization of the optimal consumption stream for the additive habit-forming utility maximization problem, in a framework of general discrete-time incomplete markets and random endowments. This characterization…
This paper provides a behavioral analysis of conservatism in beliefs. I introduce a new axiom, Dynamic Conservatism, that relaxes Dynamic Consistency when information and prior beliefs "conflict." When the agent is a subjective expected…
Recommendations based on behavioral data may be faced with ambiguous statistical evidence. We consider the case of association rules, relevant e.g.~for query and product recommendations. For example: Suppose that a customer belongs to…