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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

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.
- ReflectedImage 6y ago
  There are studies that show that people follow EE and not EUT. It's the other way around EUT fails as a theory of financial decision making since it doesn't explain the observed reality.
  - hntrader 6y ago
    I'm talking about the concept of expected utility. If EE does away with that concept, then it is a failed theory on conceptual grounds. Without this concept, tell me how EE is supposed to grapple with: (1) gamblers who take on negative EV bets (2) old people who shift into fixed income (3) low risk-tolerance young people who keep only cash (4) high risk-tolerance young people who put everything into crypto (5) why some people buy insurance and some don't, despite earning the same income The fact is, you can't explain this heterogeneous behaviour without the concept of expected utility of outcomes. Our brains are emotional, irrational vehicles designed by evo psych, and you can't grapple with that reality without some notion of subjective preference pertaining to expected outcome.
    - ReflectedImage 6y ago
      Okay so let me cut this down. EE shows that EUT only gives correct results when U = log (Wealth), that means as soon as you set U to anything other than log (Wealth), it is no longer giving correct results. So it would be fair to say EUT also has no concept of utility.
      - kgwgk 6y ago
        How do you define "correct results"? Talking about portfolio selection, for example, the EE - a.k.a. U=log(wealth) - solution may be the "correct solution" to the "we never spend a dollar problem and we have an infinite horizon" problem. But EE cannot get any results, correct or otherwise, for many other problems that are much more interesting where EUT can be applied. Like investment decisions when your horizon is not infinite and you intend to use the money at some point.
      - hntrader 6y ago
        You misunderstand the concept of subjective utility. There's no such thing as a "correct result" because people's preferences (utility) varies by individual. What's "correct" for a risk-seeking gambler is very different to what's "correct" for an investor who's trying to build generational wealth. That's why we have a U(x) to begin with. Without addressing this concept, you're no longer attempting to describe reality, you're making a prescriptive normative assertion that everyone should follow a specific strategy of your choosing.
      - kgwgk 6y ago
        > EE shows that EUT only gives correct results when U = log (Wealth) You seem to think that this invalidates EUT. On the contrary, it's a vindication of EUT. In that particular case, EUT works and the preferences of the agent would be correctly described by that particular utility function. Otherwise you wouldn't say that EE and U=log(w) give "correct results". It can also happen in other cases that EE cannot be used to explain the preferences of the agent while EUT is still applicable because a utility function (maybe logarithmic, maybe not) can be found which describes them adequately.
    - 6y ago
  - kgwgk 6y ago
    No. There are people who don't seem to understand what is EUT who claim so, though. [1] If EE just puts the U in EUT it will also fail as a theory of financial decision making in all the cases where EUT fails. [1] Did Ergodicity Economics and the Copenhagen Experiment Really Falsify Expected Utility Theory? https://researchers.one/articles/20.02.00002 https://researchers.one/articles/20.02.00002
    - ReflectedImage 6y ago
      EE does not put an U in EUT. EE stats that in EUT the U term must equal log (Wealth) otherwise EUT produces wrong results. EE uses a completely different formula. It has an open space for a (slightly restricted) function (similar to U). An example of EE with this open space filled is Kelly's criterion, which of course looks nothing like EUT.
      - kgwgk 6y ago
        > An example of EE with this open space filled is Kelly's criterion, which of course looks nothing like EUT. I’m not sure if I’m reading this correctly: Kelly’s criterion looks nothing like EUT? Maybe I completely misunderstood what you were trying to say. https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion “The Kelly bet size is found by maximizing the expected value of the logarithm of wealth, which is equivalent to maximizing the expected geometric growth rate.”
- ReflectedImage 6y ago
  "I'm not talking about orthodox utility theory ("EUT"), and I'm not trying to say that it's currently a good theory, either." The reply button is missing below so I'll reply here. The issue is that the major results of economics in this sort of area are been effectively destroyed by EE. Prospect theory for example is completely gone. There may be places where people's behaviour isn't rational but research into that needs to be effectively carried out again from scratch. The main "evo psych" results in economists have been effectively disproven. So you might be right that people don't act rationally but all existing research into that area is currently dead in the water. It's start from square 1 again.
  - hntrader 6y ago
    "research ... dead in the water" There's no need for explicit research to establish the fact that people differ in their subjective preferences (utility) pertaining to outcome distributions. The evidence is abundant. I can go down to the casino and see this. Or I can see that family member A has insurance while family member B doesn't. You talked earlier about wanting a theory to have stable foundations. A theory that doesn't even recognize the existence of subjective expected utility is not that.
kgwgk 6y ago
> Though the maths involved is a bit more complicated. Do you claim to understand them or are you just relaying the claims from others? We don't even know what do you mean by EUT.
- ReflectedImage 6y ago
  I've discussed this topic with several economics professors, thank you very much.
  - kgwgk 6y ago
    You’re welcome. Do they agree that EUT is incorrect because it’s about interacting with copies of yourself in parallel universes? Maybe they think that EUT is too limited to explain the world but then they won’t be impressed with the more restrictive EE.
    - ReflectedImage 6y ago
      I did a 3 day conversation with them over twitter. You aren't going to come up with something they didn't.
      - deleted 6y ago
        [deleted]
kgwgk 6y ago
Is there any example of ergodicity economics doing something other than selecting an utility function? If Expected Utility is not correct all the solutions proposed by Ergodicity Economics cannot be correct either.

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.

ReflectedImage 6y ago
There are studies that show that people follow EE and not EUT. It's the other way around EUT fails as a theory of financial decision making since it doesn't explain the observed reality.
- hntrader 6y ago
  I'm talking about the concept of expected utility. If EE does away with that concept, then it is a failed theory on conceptual grounds. Without this concept, tell me how EE is supposed to grapple with: (1) gamblers who take on negative EV bets (2) old people who shift into fixed income (3) low risk-tolerance young people who keep only cash (4) high risk-tolerance young people who put everything into crypto (5) why some people buy insurance and some don't, despite earning the same income The fact is, you can't explain this heterogeneous behaviour without the concept of expected utility of outcomes. Our brains are emotional, irrational vehicles designed by evo psych, and you can't grapple with that reality without some notion of subjective preference pertaining to expected outcome.
  - ReflectedImage 6y ago
    Okay so let me cut this down. EE shows that EUT only gives correct results when U = log (Wealth), that means as soon as you set U to anything other than log (Wealth), it is no longer giving correct results. So it would be fair to say EUT also has no concept of utility.
    - kgwgk 6y ago
      How do you define "correct results"? Talking about portfolio selection, for example, the EE - a.k.a. U=log(wealth) - solution may be the "correct solution" to the "we never spend a dollar problem and we have an infinite horizon" problem. But EE cannot get any results, correct or otherwise, for many other problems that are much more interesting where EUT can be applied. Like investment decisions when your horizon is not infinite and you intend to use the money at some point.
    - hntrader 6y ago
      You misunderstand the concept of subjective utility. There's no such thing as a "correct result" because people's preferences (utility) varies by individual. What's "correct" for a risk-seeking gambler is very different to what's "correct" for an investor who's trying to build generational wealth. That's why we have a U(x) to begin with. Without addressing this concept, you're no longer attempting to describe reality, you're making a prescriptive normative assertion that everyone should follow a specific strategy of your choosing.
    - kgwgk 6y ago
      > EE shows that EUT only gives correct results when U = log (Wealth) You seem to think that this invalidates EUT. On the contrary, it's a vindication of EUT. In that particular case, EUT works and the preferences of the agent would be correctly described by that particular utility function. Otherwise you wouldn't say that EE and U=log(w) give "correct results". It can also happen in other cases that EE cannot be used to explain the preferences of the agent while EUT is still applicable because a utility function (maybe logarithmic, maybe not) can be found which describes them adequately.
  - 6y ago
- kgwgk 6y ago
  No. There are people who don't seem to understand what is EUT who claim so, though. [1] If EE just puts the U in EUT it will also fail as a theory of financial decision making in all the cases where EUT fails. [1] Did Ergodicity Economics and the Copenhagen Experiment Really Falsify Expected Utility Theory? https://researchers.one/articles/20.02.00002 https://researchers.one/articles/20.02.00002
  - ReflectedImage 6y ago
    EE does not put an U in EUT. EE stats that in EUT the U term must equal log (Wealth) otherwise EUT produces wrong results. EE uses a completely different formula. It has an open space for a (slightly restricted) function (similar to U). An example of EE with this open space filled is Kelly's criterion, which of course looks nothing like EUT.
    - kgwgk 6y ago
      > An example of EE with this open space filled is Kelly's criterion, which of course looks nothing like EUT. I’m not sure if I’m reading this correctly: Kelly’s criterion looks nothing like EUT? Maybe I completely misunderstood what you were trying to say. https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion “The Kelly bet size is found by maximizing the expected value of the logarithm of wealth, which is equivalent to maximizing the expected geometric growth rate.”
ReflectedImage 6y ago
"I'm not talking about orthodox utility theory ("EUT"), and I'm not trying to say that it's currently a good theory, either." The reply button is missing below so I'll reply here. The issue is that the major results of economics in this sort of area are been effectively destroyed by EE. Prospect theory for example is completely gone. There may be places where people's behaviour isn't rational but research into that needs to be effectively carried out again from scratch. The main "evo psych" results in economists have been effectively disproven. So you might be right that people don't act rationally but all existing research into that area is currently dead in the water. It's start from square 1 again.
- hntrader 6y ago
  "research ... dead in the water" There's no need for explicit research to establish the fact that people differ in their subjective preferences (utility) pertaining to outcome distributions. The evidence is abundant. I can go down to the casino and see this. Or I can see that family member A has insurance while family member B doesn't. You talked earlier about wanting a theory to have stable foundations. A theory that doesn't even recognize the existence of subjective expected utility is not that.

kgwgk 6y ago

> Though the maths involved is a bit more complicated. Do you claim to understand them or are you just relaying the claims from others? We don't even know what do you mean by EUT.

ReflectedImage 6y ago
I've discussed this topic with several economics professors, thank you very much.
- kgwgk 6y ago
  You’re welcome. Do they agree that EUT is incorrect because it’s about interacting with copies of yourself in parallel universes? Maybe they think that EUT is too limited to explain the world but then they won’t be impressed with the more restrictive EE.
  - ReflectedImage 6y ago
    I did a 3 day conversation with them over twitter. You aren't going to come up with something they didn't.
    - deleted 6y ago
      [deleted]

kgwgk 6y ago

Is there any example of ergodicity economics doing something other than selecting an utility function? If Expected Utility is not correct all the solutions proposed by Ergodicity Economics cannot be correct either.