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I feel that this downplays the justification for theories of expected utility too much? But I still want to keep reading to see where they're going with this.
by drdeca 6y ago
I feel that this downplays the justification for theories of expected utility too much? But I still want to keep reading to see where they're going with this.
Ok, like, it says that modeling people as trying to maximize expected utility, is like assuming something as if one is interacting with paralell universe copies of onseself.
But, surely the author must be familiar with the Von Neumann–Morgenstern utility theorem?
It complains that when people fail to act according to the theories, that the people are considered to be irrational, rather than amending the theories. While it is of course true that theories need to be made to account for how people actually behave, it seems to me that people failing to satisfy the vNM axioms, really is a way in which people fail to live up to the correct ideal of a rational agent.
Well, maybe for it to make sense, instead there should be a formalization of like, a compute-limited approximation of following the vNM axioms, maybe throw in a dash of sub-agent stuff, and a few things along those lines.
Hmm.
Ok, well, if this makes better predictions of how people behave, that is valuable. Though, it would raise the question of "why?".
- zwaps 6y agoIt's really mind boggling if you know the original proofs my Neumann-Morgenstein or Savage for that matter. In his article, Peters immediately rushes into the time domain, whereas the time domain doesn't exist at all in EUT. I feel like Peters could have made a valid point about the application of dynamic EUT, but he severely over-claims the problem he sees. To refute EUT, Peters had to start with one set of EUT axioms. He clearly doesn't want to do that. We can guess why.
- ReflectedImage 6y agoOle Peters has addressed this. He had a study of real people done, which shows that real people make decisions using the time domain. The behaviour of real people matches Ole Peters maths but not EUT. This means that EUT does not apply to the real world, which makes EUT a pointless theory.
- QuesnayJr 6y agoEven that isn't new. There are hundreds of experiments that point out the limitations of EU. If you're looking for a reason to reject EU, you didn't need to wait until now. Allais published his paradox in 1953. If Peters wants to propose an alternate theory, he needs to explain all of this existing evidence. For example, he needs to explain why historically the return on stocks is so high. If people only cared about the logarithm of wealth, they would hold almost entirely stocks and very little bonds. They would take their weekly paycheck and deposit it directly into their Robinhood account. (And everyone would have a brokerage account.)
- ReflectedImage 6y agoOle Peters doesn't have to show things, he isn't claiming. "people only cared about the logarithm of wealth" But that isn't what Ole Peters is claiming.
- kgwgk 6y agoThat's not correct. "Multi-period Expected Utility Theory Predicts Zero Risk Aversion in Copenhagen Experiment, Same as Ergodicity Economics." https://medium.com/@aa_goldstein/multi-period-expected-utility-theory-predicts-zero-risk-aversion-in-copenhagen-experiment-same-as-60637aa28761 https://medium.com/@aa_goldstein/multi-period-expected-utili...
- rmbeard 6y agoOne could always use Choquet expected utility to get around any behavioral objections to the von Neumann or Savage axiomatizations of expected utility theory. Unfortunately this ergodic paper by Peters is simply not a constructive contribution to the debate but rather a red herring.