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Expected Utility Theory (EUT) is wrong and Ergodicity Economics (EE) is an alternative. EUT is claiming there are parallel universes not EE. And your right EUT

Expected Utility Theory (EUT) is wrong and Ergodicity Economics (EE) is an alternative. EUT is claiming there are parallel universes not EE. And your right EUT is delusional to make that claim. About your opinion: "It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair

kgwgk 6y ago
> EUT is claiming there are parallel universes not EE. Can you back this up with a reference to anything not coming from Ole Peters (and known associates)? > "It is difficult to get a man to understand something when his salary depends upon his not understanding it." Helping to clear the confusion he creates in his full-time occupation is a just a hobby for me.
- ReflectedImage 6y ago
  It's obviously true. Let's say there is a lottery L, it has a million tickets $1 each, it pays out 1 million and 1 dollars on the winning ticket. Should you buy a ticket? EE says no. EV says yes since it has a positive EV. EE says no because in 99.999999% of cases you lose $1. EV says yes because you share the 1 million and 1 dollars out in equal portions with versions of you living in a million parallel universes, one of which won. I hope that clears this up for you. --- @drdeca: Due to missing reply button I'll reply here. The claim being made is that U is a hack. When you set U = log (Wealth), EUT gives the same result as EE. When you set U to any other function EUT gives bad answers. EE has it's own set of functions that take place of U in EUT and all of those functions give the right result whereas EUT only gives the right result when you set U = log (Wealth)
  - drdeca 6y ago
    Expected utility doesn’t say that you should buy a ticket, no. Obviously no. That would only hold if you assume that utility is either linear or superlinear in money (or, more precisely, that the marginal utility of losing a dollar, times 1-(1/1 million), plus the marginal utility of gaining a million dollars, divided by 1 million, is greater than 0) If this is the sort of argument that people advocating for EE are making, it makes EE seem less worthy of attention. Oh, you said EV not EU? Ok, but no one claims that people maximize expected money. That would be stupid. Using EU rather than E$ isn’t some hack to add a fudge factor, it is capturing that people have preferences about things in general, not merely how much money they have. Placing money centrally is silly; money isn’t some universal terminal goal. It is a convergent instrumental goal. Depending on what I care about, the use of money to me will scale differently, just like how the scale of other things to each-other will. The idea of utility is to pick the quantity which I do value linearly in probability. However I take probability into account, provided I do so in a coherent way, there is a unique-up-to-positive-affine-transformation utility function which corresponds to that.
  - kgwgk 6y ago
    > EUT only gives the right result when you set U = log (Wealth) If it does give the right result why do you say elsewhere that "they aren't quite identical and it does make a difference" and you coded and ran a simulation that proves it?
  - kgwgk 6y ago
    > EE has it's own set of functions that take place of U in EUT If EE is just a way to choose the U in EUT how does that mean that EUT is incorrect? EUT is incorrect only when there is no U that can describe the preferences of the agent.
  - ReflectedImage 6y ago
    @kgwgk You are conceptually all over the place since you don't understand the topic. "If EE is just a way to choose the U in EUT how does that mean that EUT is incorrect?" EE doesn't choose the U in the EUT. EE has something similar to U in it's math where you can select any function of a certain class and plug it in. One of those function when plugged in gives out the Kelly criteria. "If it does give the right result why do you say elsewhere that "they aren't quite identical and it does make a difference" and you coded and ran a simulation that proves it?" The simulation ran the game purposed by Ole Peters where they give different results. Only in special games like the ones typically purposed by economists, do they give the same result.
    - kgwgk 6y ago
      Has it crossed your mind thay maybe it's you who doesn't understand the topic? EUT doesn't say what the U is. It only says that one can be found if the agent's preferences are rational (for some definition of rationality). Can you point to an example where EE provides a solution that cannot be represented by some utility function?
    - kgwgk 6y ago
      > The simulation ran the game purposed by Ole Peters where they give different results. I don't know if that game is related to "retirement portfolios", probably not. I understand then that you don't object to my claim that 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). And that you agree with Ole Peters and yours truly that asymptotic growth maximization of a multiplicative process gives the same solution as the maximization of logarithmic utility.
drdeca 6y ago
> EUT is claiming there are parallel universes Nope. Unless you claim that all discussion of probability does the same. If an agent satisfies the vNM axioms , that is sufficient to conclude that the agent’s actions are equivalent to maximizing the expectation of some function, which we call the utility. These axioms do not require any assumptions about “parallel universes” beyond simply the concept that “there is such a thing as probability”. Presumably, the same idea would work even if the “probabilities” in question were all from logical uncertainty due to limited computation time, taking place in an entirely deterministic universe. In such a case, there explicitly cannot be the “alternate universes”, because they would be logically inconsistent, but due to computational limits, the agent is still uncertain, and so it still makes sense to deal with expected utility.

kgwgk 6y ago

> EUT is claiming there are parallel universes not EE. Can you back this up with a reference to anything not coming from Ole Peters (and known associates)? > "It is difficult to get a man to understand something when his salary depends upon his not understanding it." Helping to clear the confusion he creates in his full-time occupation is a just a hobby for me.

ReflectedImage 6y ago
It's obviously true. Let's say there is a lottery L, it has a million tickets $1 each, it pays out 1 million and 1 dollars on the winning ticket. Should you buy a ticket? EE says no. EV says yes since it has a positive EV. EE says no because in 99.999999% of cases you lose $1. EV says yes because you share the 1 million and 1 dollars out in equal portions with versions of you living in a million parallel universes, one of which won. I hope that clears this up for you. --- @drdeca: Due to missing reply button I'll reply here. The claim being made is that U is a hack. When you set U = log (Wealth), EUT gives the same result as EE. When you set U to any other function EUT gives bad answers. EE has it's own set of functions that take place of U in EUT and all of those functions give the right result whereas EUT only gives the right result when you set U = log (Wealth)
- drdeca 6y ago
  Expected utility doesn’t say that you should buy a ticket, no. Obviously no. That would only hold if you assume that utility is either linear or superlinear in money (or, more precisely, that the marginal utility of losing a dollar, times 1-(1/1 million), plus the marginal utility of gaining a million dollars, divided by 1 million, is greater than 0) If this is the sort of argument that people advocating for EE are making, it makes EE seem less worthy of attention. Oh, you said EV not EU? Ok, but no one claims that people maximize expected money. That would be stupid. Using EU rather than E$ isn’t some hack to add a fudge factor, it is capturing that people have preferences about things in general, not merely how much money they have. Placing money centrally is silly; money isn’t some universal terminal goal. It is a convergent instrumental goal. Depending on what I care about, the use of money to me will scale differently, just like how the scale of other things to each-other will. The idea of utility is to pick the quantity which I do value linearly in probability. However I take probability into account, provided I do so in a coherent way, there is a unique-up-to-positive-affine-transformation utility function which corresponds to that.
- kgwgk 6y ago
  > EUT only gives the right result when you set U = log (Wealth) If it does give the right result why do you say elsewhere that "they aren't quite identical and it does make a difference" and you coded and ran a simulation that proves it?
- kgwgk 6y ago
  > EE has it's own set of functions that take place of U in EUT If EE is just a way to choose the U in EUT how does that mean that EUT is incorrect? EUT is incorrect only when there is no U that can describe the preferences of the agent.
- ReflectedImage 6y ago
  @kgwgk You are conceptually all over the place since you don't understand the topic. "If EE is just a way to choose the U in EUT how does that mean that EUT is incorrect?" EE doesn't choose the U in the EUT. EE has something similar to U in it's math where you can select any function of a certain class and plug it in. One of those function when plugged in gives out the Kelly criteria. "If it does give the right result why do you say elsewhere that "they aren't quite identical and it does make a difference" and you coded and ran a simulation that proves it?" The simulation ran the game purposed by Ole Peters where they give different results. Only in special games like the ones typically purposed by economists, do they give the same result.
  - kgwgk 6y ago
    Has it crossed your mind thay maybe it's you who doesn't understand the topic? EUT doesn't say what the U is. It only says that one can be found if the agent's preferences are rational (for some definition of rationality). Can you point to an example where EE provides a solution that cannot be represented by some utility function?
  - kgwgk 6y ago
    > The simulation ran the game purposed by Ole Peters where they give different results. I don't know if that game is related to "retirement portfolios", probably not. I understand then that you don't object to my claim that 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). And that you agree with Ole Peters and yours truly that asymptotic growth maximization of a multiplicative process gives the same solution as the maximization of logarithmic utility.

drdeca 6y ago

> EUT is claiming there are parallel universes Nope. Unless you claim that all discussion of probability does the same. If an agent satisfies the vNM axioms , that is sufficient to conclude that the agent’s actions are equivalent to maximizing the expectation of some function, which we call the utility. These axioms do not require any assumptions about “parallel universes” beyond simply the concept that “there is such a thing as probability”. Presumably, the same idea would work even if the “probabilities” in question were all from logical uncertainty due to limited computation time, taking place in an entirely deterministic universe. In such a case, there explicitly cannot be the “alternate universes”, because they would be logically inconsistent, but due to computational limits, the agent is still uncertain, and so it still makes sense to deal with expected utility.