arXiv research

Paper formalizes Simon's satisficing through FFSD, proving its equivalence to expected utility theory.

Economics tool predicts failure times in reliability systems.

Survey finds LLMs match human economic expectations closely.

The theory of rational choice assumes that when people make decisions they do so in order to maximize their utility. In order to achieve this goal they ought to use all the information available and consider all the choices available to choose an optimal choice. This paper investigates what happens when decisions are m…

Subjective expected utility theory assumes that decision-makers possess unlimited computational resources to reason about their choices; however, virtually all decisions in everyday life are made under resource constraints - i.e. decision-makers are bounded in their rationality. Here we experimentally tested the predic…

LLMs in financial markets show diverse behaviors, from stable to speculative, challenging rational expectations.

Equilibrium pricing has been proven to underlie the rational Insured expectancy of premia additivity for composition of policies fully covering independent risks.

Assuming that agents' preferences satisfy first-order stochastic dominance, we show how the Expected Utility paradigm can rationalize all optimal investment choices: the optimal investment strategy in any behavioral law-invariant (state-independent) setting corresponds to the optimum for an expected utility maximizer w…

We introduce a model of super-exponential financial bubbles with two assets (risky and risk-free), in which rational investors and noise traders co-exist. Rational investors form expectations on the return and risk of a risky asset and maximize their constant relative risk aversion expected utility with respect to thei…

We demonstrate a limitation of discounted expected utility, a standard approach for representing the preference to risk when future cost is discounted. Specifically, we provide an example of the preference of a decision maker that appears to be rational but cannot be represented with any discounted expected utility. A …

We propose two rational expectation models of transient financial bubbles with heterogeneous arbitrageurs and positive feedbacks leading to self-reinforcing transient stochastic faster-than-exponential price dynamics. As a result of the nonlinear feedbacks, the termination of a bubble is found to be characterized by a …

LLMs can fail to maximize aligned values even after training, due to irrational reasoning.

Kyle (1985) builds a pioneering and influential model, in which an insider with long-lived private information submits an optimal order in each period given the market maker's pricing rule. An inconsistency exists to some extent in the sense that the ``constant pricing rule " actually assumes an adaptive expected price…

This work explains crises in markets without external news using bounded rational agents.

We consider a novel application of inverse reinforcement learning with behavioral economics constraints to model, learn and predict the commenting behavior of YouTube viewers. Each group of users is modeled as a rationally inattentive Bayesian agent which solves a contextual bandit problem. Our methodology integrates t…

New method identifies flawed internal models of the world in animals.

We propose a generalization of tropical curves by dropping the rationality and integrality requirements while preserving the balancing condition. An interpretation of such curves as critical points of a certain quadratic functional allows us to settle the existence and uniqueness problem. The machinery of dual polygons…

This work develops some technology for accessing the loop expansion of the Kontsevich integral of a knot. The setting is an application of the LMO invariant to certain surgery presentations of knots by framed links in the solid torus. A consequence of this technology is a certain recent conjecture of Rozansky's. Rozans…

We consider a framework involving behavioral economics and machine learning. Rationally inattentive Bayesian agents make decisions based on their posterior distribution, utility function and information acquisition cost Renyi divergence which generalizes Shannon mutual information). By observing these decisions, how ca…

This study proposes an approach based on a perturbation technique to construct global solutions to dynamic stochastic general equilibrium models (DSGE). The main idea is to expand a solution in a series of powers of a small parameter scaling the uncertainty in the economy around a solution to the deterministic model, i…

In this paper, it is explained that a topological invariant for 3-manifold $M$ with $b_1(M)=1$ can be constructed by applying Fukaya's Morse homotopy theoretic approach for Chern--Simons perturbation theory to a local system on $M$ of rational functions associated to the free abelian covering of $M$. Our invariant take…

Accurately predicting future behaviors of surrounding vehicles is an essential capability for autonomous vehicles in order to plan safe and feasible trajectories. The behaviors of others, however, are full of uncertainties. Both rational and irrational behaviors exist, and the autonomous vehicles need to be aware of th…

Witt spaces are pseudomanifolds for which the middle-perversity intersection homology with rational coefficients is self-dual. We give a new construction of the symmetric signature for Witt spaces which is similar in spirit to the construction given by Miscenko for manifolds. Our construction has all of the expected pr…

Bayesian optimization with RPCE reduces MAP estimation for structural dynamics models.

Study shows mutual funds add little value for uninformed investors.

We introduce a microscopic model of interacting financial agents, where each agent is characterized by two portfolios; money invested in bonds and money invested in stocks. Furthermore, each agent is faced with an optimization problem in order to determine the optimal asset allocation. The stock price evolution is driv…

We consider the Witten-Reshetikhin-Turaev invariants or Chern-Simons partition function at or around roots of unity $q=e^{2πi \frac{1}{K}}$ with rational level $K=\frac{r}{s}$ where $r$ and $s$ are coprime integers. From the exact expression for the $G=SU(2)$ Witten-Reshetikhin-Turaev invariants of Seifert manifolds at…

Principal circle bundle over a PL polyhedron can be triangulated and thus obtains combinatorics. The triangulation is assembled from triangulated circle bundles over simplices. To every triangulated circle bundle over a simplex we associate a necklace (in combinatorial sense). We express rational local formulas for all…

The model of rational decision-making in most of economics and statistics is expected utility theory (EU) axiomatised by von Neumann and Morgenstern, Savage and others. This is less the case, however, in financial economics and mathematical finance, where investment decisions are commonly based on the methods of mean-v…

We introduce the concept of "negative bubbles" as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the Johansen-Ledoit-Sornette (JLS) model of rational expectation bubbles with a hazard rate de…

Study on stock price formation on trees with multi-population and non-rational agents.

We present a countably infinite number of new explicit co-homogeneity one Sasaki-Einstein metrics on S^2 x S^3, in both the quasi-regular and irregular classes. These give rise to new solutions of type IIB supergravity which are expected to be dual to N=1 superconformal field theories in four-dimensions with compact or…

We propose a novel concept of a Systemic Optimal Risk Transfer Equilibrium (SORTE), which is inspired by the Bühlmann's classical notion of an Equilibrium Risk Exchange. We provide sufficient general assumptions that guarantee existence, uniqueness, and Pareto optimality of such a SORTE. In both the Bühlmann and the SO…

We identify 998 closed hyperbolic 3-manifolds whose volumes are rationally related to Dedekind zeta values, with coprime integers $a$ and $b$ giving $a/b vol(M)=(-D)^{3/2}/(2π)^{2n-4} (ζ_K(2))/(2ζ(2))$ for a manifold M whose invariant trace field $K$ has a single complex place, discriminant $D$, degree $n$, and Dedekin…

We study the effects of introducing information inefficiency in a model for a random linear economy with a representative consumer. This is done by considering statistical, instead of classical, economic general equilibria. Employing two different approaches we show that inefficiency increases the consumption set of a …

The study examines the asymptotic behavior of cohomology groups of algebraic group subgroups.

Keeping a basic tenet of economic theory, rational expectations, we model the nonlinear positive feedback between agents in the stock market as an interplay between nonlinearity and multiplicative noise. The derived hyperbolic stochastic finite-time singularity formula transforms a Gaussian white noise into a rich time…

This work suggests modifications to a previously introduced class of heterogeneous agent models that allow for the inclusion of different types of agent motivations and behaviours in a unified way. The agents operate within a highly simplified environment where they are only able to be long or short one unit of the ass…

Gambles are random variables that model possible changes in monetary wealth. Classic decision theory transforms money into utility through a utility function and defines the value of a gamble as the expectation value of utility changes. Utility functions aim to capture individual psychological characteristics, but thei…

Signals coming from multivariate higher order conditional moments as well as the information contained in exogenous covariates, can be effectively exploited by rational investors to allocate their wealth among different risky investment opportunities. This paper proposes a new flexible dynamic copula model being able t…

We study the informational efficiency of a market with a single traded asset. The price initially differs from the fundamental value, about which the agents have noisy private information (which is, on average, correct). A fraction of traders revise their price expectations in each period. The price at which the asset …

Social media reduces individual investors' disposition effect through negative information.

LLMs mimic human traders in finance, but not as much as expected.

Proponents of behavioral finance have identified several "puzzles" in the market that are inconsistent with rational finance theory. One such puzzle is the "excess volatility puzzle". Changes in equity prices are too large given changes in the fundamentals that are expected to change equity prices. In this paper, we of…

New method for LLMs to learn reasoning by optimizing latent variables.

This paper presents a general framework for studying diverse beliefs in dynamic economies. Within this general framework, the characterization of a central-planner general equilbrium turns out to be very easy to derive, and leads to a range of interesting applications. We show how for an economy with log investors hold…

The paper constructs new rational homology 3-spheres bounding rational homology 4-balls.

We present a plausible micro-founded model for the previously postulated power law finite time singular form of the crash hazard rate in the Johansen-Ledoit-Sornette model of rational expectation bubbles. The model is based on a percolation picture of the network of traders and the concept that clusters of connected tr…