Deciding about deciding

Andrew Fleck
Thursday, June 2 at 4 pm
Ross N638

The cornerstone of modern decision theories are functionals which encode preferences over sets of random variables. Perhaps the most famous example from financial economics is expected utility. Other notable examples could include premium principles in insurance (e.g.. the Esscher principle or Expected Shortfall etc…).

One question often left unexamined is how reasonable one utility is over another. Often the choice of utility is made more for modeling convenience or the richness of associated results. The recent popularity of behavioural economics can in part be viewed as a response to this tendency.

In this talk, I will explore some recent heterodox ideas known as Ergodicity economics. I will also review some more established ideas from Ruin Theory. Specifically, we will explore the idea that there may be some simple operational criteria governing optimal decision making and in turn the optimal choice of utility.