I recommend Ole Peters’ papers on the topic. That way you won’t have to construct your epicycles upon the epicicles commonly know as utility calculus.
We are taught to always maximize the arithmetic mean
By whom?
The probable answer is: By economists.
Quite simply: they are wrong. Why?
That’s what ergodicity economics tries to explain.
In brief, economics typically wrongly assumes that the average over time can be substituted with the average over an ensemble.
Ergodicity economics shows that there are some +EV bets, that do not pay off for the individual
For example you playing a bet of the above type 100 times is assumed to be the same than 100 people each betting once.
This is simply wrong in the general case. For a trivial example, if there is a minimum bet, then you can simply go bankrupt before playing 100 games
Interestingly however, if 100 people each bet once, and then afterwards redistribute their wealth, then their group as a whole is better off than before. Which is why insurance works
And importantly, which is exactly why cooperation among humans exists. Cooperation that, according to economists, is irrational, and shouldn’t even exist.
Anyway I’m butchering it. I can only recommend Ole Peters’ papers
Are you familiar with ergodicity economics?
https://twitter.com/ole_b_peters/status/1591447953381756935?cxt=HHwWjsC8vere-pUsAAAA
I recommend Ole Peters’ papers on the topic. That way you won’t have to construct your epicycles upon the epicicles commonly know as utility calculus.
By whom?
The probable answer is: By economists.
Quite simply: they are wrong. Why?
That’s what ergodicity economics tries to explain.
In brief, economics typically wrongly assumes that the average over time can be substituted with the average over an ensemble.
Ergodicity economics shows that there are some +EV bets, that do not pay off for the individual
For example you playing a bet of the above type 100 times is assumed to be the same than 100 people each betting once.
This is simply wrong in the general case. For a trivial example, if there is a minimum bet, then you can simply go bankrupt before playing 100 games
Interestingly however, if 100 people each bet once, and then afterwards redistribute their wealth, then their group as a whole is better off than before. Which is why insurance works
And importantly, which is exactly why cooperation among humans exists. Cooperation that, according to economists, is irrational, and shouldn’t even exist.
Anyway I’m butchering it. I can only recommend Ole Peters’ papers