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"expected utility needs to be the centrepiece of the theory" Fundamentally expected utility is wrong. Kellys is fatally flawed as it's merely one of a whole cl

"expected utility needs to be the centrepiece of the theory" Fundamentally expected utility is wrong. Kellys is fatally flawed as it's merely one of a whole class of functions that be used, where Kellys happens to be on the aggressive side of things. Ole Peters gives the entire class of the functions that can be used. There is obviously a whole band of less to more aggressive options you can take.

hntrader 6y ago
> Fundamentally expected utility is wrong. Do you say this because EUT currently doesn't handle ergodicity? Why do those two things need to be mutually exclusive? > whole band of less to more aggressive options Right, and which option I pick will be based on utility preference considerations both over the lifecycle of the decision making process as well as over the terminal outcome's distribution. Expected utility is still inextricably part of this. Older people are going to choose low aggression options on their retirement portfolio because the utility consequences of ruin are much different to a 20 year old's. Expected utility is the point. Handling ergocidity just tells us how to get there correctly.
- ReflectedImage 6y ago
  "doesn't handle ergodicity?" non-ergodicity. The ergodicity economics' name is confusing as it dropped the non- part. "Why do those two things need to be mutually exclusive?" EUT is basically the formula of ergodicity with slight changes. It doesn't retrofit. "their retirement portfolio" The ergodicity economic formulas generate slightly more money on average than their regular economics counter parts. [You can see where this is going...]
  - hntrader 6y ago
    > The ergodicity economic formulas generate slightly more money We're talking about a theory of humans' (financial) decision making. Old people make less money than young people on purpose because of expected utility preferences. Ignoring expected utility is therefore automatically fatal and a non-starter, as this single example demonstrates.
    - ReflectedImage 6y ago
      "Old people make less money than young people on purpose because of expected utility preferences." You need to prove this whilst keeping in mind that ergodicity economics takes account of factors that regular economics does not. You would need to show it wasn't one of those factors being responsible. Ole Peters has already done the studies on people (outsourced to a psychology department) to show they are following his economics model.
      - hntrader 6y ago
        "You need to prove this " It's already well established. Lifecycle investing is common practice among pension funds. "You would need to show it wasn't one of those factors" Firstly, I'm not the one with the burden of proof that has to check whether this fits the theory. Secondly, you're misunderstanding my objection. What I'm objecting to are the very conceptual foundations of the theory. Old people demonstrably accept a lower EV than young people because of a difference in expected utility over the distribution of near-term outcomes. To throw the concept of expected utility in the bin is therefore a departure from reality and as such the theory automatically fails on conceptual grounds.
        ReflectedImage 6y ago
        The maths of Ergodicty Economics has been checked by a Nobel prize winning physicist. No one has been able to contest it. You can look all through the comment section, you won't find anyone claiming the maths is wrong. Ergodicty economics disproves EUT. EUT is rejected on solid mathematical grounds. Saying Expected Utility is correct is no different than claiming that 2 + 2 = 5. Though the maths involved is a bit more complicated.
        hntrader 6y ago
        Once again, you are misunderstanding my objection. The math of EE is correct given the axioms from which it is deduced. Nobody anywhere is disputing that. What I'm disputing is whether it is a theory that explains human financial decision making, in the same way that some physicists dispute that string theory explains physical reality (despite acknowledging that the math behind string theory is deductively correct). "Saying Expected Utility is correct" It is conceptually correct, as my old vs young example shows. The fact that EE fails to model this is a fatal counterexample. Once again - the math IS deductively correct, but that same math fails as a theory of financial decision making since it doesn't explain the observed reality.
  - kgwgk 6y ago
    > "their retirement portfolio" The ergodicity economic formulas generate slightly more money on average than their regular economics counter parts. False. The ergodicity economic formulas generate exactly the same portfolio as the "regular economics" approach when you make the same assumptions that are implicit in the asymptotic growth maximization (no spending, infinite horizon, logarithmic utility). Don't you think that when people choose investments their objective may be to spend at least some of their money before the end of time?
    - ReflectedImage 6y ago
      True. It makes more money I've coded and run the simulations. The rest is just you arguing against a strawman in your head.
      - kgwgk 6y ago
        Growth-optimal portfolios are part of regular economics. Look it up. Maybe there was something wrong with your code? Because optimizing asymptotic growth and maximizing logarithmic utilty are mathematically identical.
        ReflectedImage 6y ago
        Ergonomic Economics (EE) is a more general theory than Growth-optimal portfolios. Kelly's criterion is a special case of EE. EE doesn't suffer from the same problems as Growth-optimal portfolios either (Kelly's is a hyper aggressive form of EE). "Maybe there was something wrong with your code? Because optimizing asymptotic growth and maximizing logarithmic utilty are mathematically identical." So naive and so wrong. That's only true if you structure the problem to make it true. In the general case, not at all.
        kgwgk 6y ago
        I said "generate exactly the same portfolio (...) when you make the same assumptions that are implicit in the asymptotic growth maximization". You said it was not so. That you coded and ran the simulations. Did you compare the asymptotic growth maximization of a multiplicative process with the logarithmic utility solution? Yes or no? Either you simulated something else or you did something wrong trying to simulate two problems that everyone agrees that are identical.

hntrader 6y ago

> Fundamentally expected utility is wrong. Do you say this because EUT currently doesn't handle ergodicity? Why do those two things need to be mutually exclusive? > whole band of less to more aggressive options Right, and which option I pick will be based on utility preference considerations both over the lifecycle of the decision making process as well as over the terminal outcome's distribution. Expected utility is still inextricably part of this. Older people are going to choose low aggression options on their retirement portfolio because the utility consequences of ruin are much different to a 20 year old's. Expected utility is the point. Handling ergocidity just tells us how to get there correctly.

ReflectedImage 6y ago
"doesn't handle ergodicity?" non-ergodicity. The ergodicity economics' name is confusing as it dropped the non- part. "Why do those two things need to be mutually exclusive?" EUT is basically the formula of ergodicity with slight changes. It doesn't retrofit. "their retirement portfolio" The ergodicity economic formulas generate slightly more money on average than their regular economics counter parts. [You can see where this is going...]
- hntrader 6y ago
  > The ergodicity economic formulas generate slightly more money We're talking about a theory of humans' (financial) decision making. Old people make less money than young people on purpose because of expected utility preferences. Ignoring expected utility is therefore automatically fatal and a non-starter, as this single example demonstrates.
  - ReflectedImage 6y ago
    "Old people make less money than young people on purpose because of expected utility preferences." You need to prove this whilst keeping in mind that ergodicity economics takes account of factors that regular economics does not. You would need to show it wasn't one of those factors being responsible. Ole Peters has already done the studies on people (outsourced to a psychology department) to show they are following his economics model.
    - hntrader 6y ago
      "You need to prove this " It's already well established. Lifecycle investing is common practice among pension funds. "You would need to show it wasn't one of those factors" Firstly, I'm not the one with the burden of proof that has to check whether this fits the theory. Secondly, you're misunderstanding my objection. What I'm objecting to are the very conceptual foundations of the theory. Old people demonstrably accept a lower EV than young people because of a difference in expected utility over the distribution of near-term outcomes. To throw the concept of expected utility in the bin is therefore a departure from reality and as such the theory automatically fails on conceptual grounds.
      - ReflectedImage 6y ago
        The maths of Ergodicty Economics has been checked by a Nobel prize winning physicist. No one has been able to contest it. You can look all through the comment section, you won't find anyone claiming the maths is wrong. Ergodicty economics disproves EUT. EUT is rejected on solid mathematical grounds. Saying Expected Utility is correct is no different than claiming that 2 + 2 = 5. Though the maths involved is a bit more complicated.
        hntrader 6y ago
        Once again, you are misunderstanding my objection. The math of EE is correct given the axioms from which it is deduced. Nobody anywhere is disputing that. What I'm disputing is whether it is a theory that explains human financial decision making, in the same way that some physicists dispute that string theory explains physical reality (despite acknowledging that the math behind string theory is deductively correct). "Saying Expected Utility is correct" It is conceptually correct, as my old vs young example shows. The fact that EE fails to model this is a fatal counterexample. Once again - the math IS deductively correct, but that same math fails as a theory of financial decision making since it doesn't explain the observed reality.
- kgwgk 6y ago
  > "their retirement portfolio" The ergodicity economic formulas generate slightly more money on average than their regular economics counter parts. False. The ergodicity economic formulas generate exactly the same portfolio as the "regular economics" approach when you make the same assumptions that are implicit in the asymptotic growth maximization (no spending, infinite horizon, logarithmic utility). Don't you think that when people choose investments their objective may be to spend at least some of their money before the end of time?
  - ReflectedImage 6y ago
    True. It makes more money I've coded and run the simulations. The rest is just you arguing against a strawman in your head.
    - kgwgk 6y ago
      Growth-optimal portfolios are part of regular economics. Look it up. Maybe there was something wrong with your code? Because optimizing asymptotic growth and maximizing logarithmic utilty are mathematically identical.
      - ReflectedImage 6y ago
        Ergonomic Economics (EE) is a more general theory than Growth-optimal portfolios. Kelly's criterion is a special case of EE. EE doesn't suffer from the same problems as Growth-optimal portfolios either (Kelly's is a hyper aggressive form of EE). "Maybe there was something wrong with your code? Because optimizing asymptotic growth and maximizing logarithmic utilty are mathematically identical." So naive and so wrong. That's only true if you structure the problem to make it true. In the general case, not at all.
        kgwgk 6y ago
        I said "generate exactly the same portfolio (...) when you make the same assumptions that are implicit in the asymptotic growth maximization". You said it was not so. That you coded and ran the simulations. Did you compare the asymptotic growth maximization of a multiplicative process with the logarithmic utility solution? Yes or no? Either you simulated something else or you did something wrong trying to simulate two problems that everyone agrees that are identical.