Related papers: Testing by Betting while Borrowing and Bargaining
We consider an approach to credit risk in which the information about the time of bankruptcy is modelled using a Brownian bridge that starts at zero and is conditioned to equal zero when the default occurs. This raises the question whether…
Two-player graph games are a fundamental model for reasoning about the interaction of agents. These games are played between two players who move a token along a graph. In bidding games, the players have some monetary budget, and at each…
We determine the optimal investment strategy of an individual who targets a given rate of consumption and who seeks to minimize the probability of going bankrupt before she dies, also known as {\it lifetime ruin}. We impose two types of…
Shafer (2021) offers a betting perspective on statistical testing which may be useful for foundational debates, given that disputes over such testing continue to be intense. To be helpful for researchers, however, this perspective will need…
In this paper we deal with the optimal bankruptcy problem for an agent who can optimally allocate her consumption rate, the amount of capital invested in the risky asset as well as her leisure time. In our framework, the agent is endowed by…
As financial institutions increasingly rely on machine learning models to automate lending decisions, concerns about algorithmic fairness have risen. This paper explores the tradeoff between enforcing fairness constraints (such as…
Online lending, a phenomenon which is becoming mainstream due to the migration of consumer finance to the Internet and the adoption of AI based lending models, is an example of learning by doing. This paper studies optimal policies for a…
Much of science is (rightly or wrongly) driven by hypothesis testing. Even in situations where the hypothesis testing paradigm is correct, the common practice of basing inferences solely on p-values has been under intense criticism for over…
When a loan is approved for a person or company, the bank is subject to \emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of \emph{security}, which will be collected if the lender…
Modern language models fail a fundamental requirement of trustworthy intelligence: knowing when not to answer. Despite achieving impressive accuracy on benchmarks, these models produce confident hallucinations, even when wrong answers carry…
The opportunity to tell a white lie (i.e., a lie that benefits another person) generates a moral conflict between two opposite moral dictates, one pushing towards telling always the truth and the other pushing towards helping others. Here…
Prediction markets are useful for estimating probabilities of claims whose truth will be revealed at some fixed time -- this includes questions about the values of real-world events (i.e. statistical uncertainty), and questions about the…
We study a modification of the so-called Parrondo's paradox where a large number of individuals choose the game they want to play by voting. We show that it can be better for the players to vote randomly than to vote according to their own…
That there exist two losing games that can be combined, either by random mixture or by nonrandom alternation, to form a winning game is known as Parrondo's paradox. We establish a strong law of large numbers and a central limit theorem for…
For a game with positive profit, the optimal proportion of investment required to continue investing without borrowing is uniquely determined by an integral equation for each price. For a game with parallel translated profit, the ratio of…
Scoring models support decision-making in financial institutions. Their estimation and evaluation are based on the data of previously accepted applicants with known repayment behavior. This creates sampling bias: the available labeled data…
A fundamental assumption of classical hypothesis testing is that the significance threshold $\alpha$ is chosen independently from the data. The validity of confidence intervals likewise relies on choosing $\alpha$ beforehand. We point out…
In clinical studies upon which decisions are based there are two types of errors that can be made: a type I error arises when the decision is taken to declare a positive outcome when the truth is in fact negative, and a type II error arises…
For gambling on horses, a one-parameter family of utility functions is proposed, which contains Kelly's logarithmic criterion and the expected-return criterion as special cases. The strategies that maximize the utility function are derived,…
We consider the classic Kelly gambling problem with general distribution of outcomes, and an additional risk constraint that limits the probability of a drawdown of wealth to a given undesirable level. We develop a bound on the drawdown…