Psychology is Fundamental: The Limitations of Growth-Optimal Approaches to Decision Making under Uncertainty
20 Pages Posted: 27 Jun 2022 Last revised: 17 Jan 2023
Date Written: August 31, 2022
Abstract
A new research programme in ‘Ergodicity Economics’ has reinvigorated interest in growth-optimal approaches to decision making under uncertainty. We show that Ergodicity Economics is best understood as traditional growth-optimisation with a new metaphysical justification. We then extend the argument in Samuelson (1971) to show that growth-optimal approaches to decision making are necessarily always incompatible with expected utility theory. Drawing on this result, we show that Ergodicity Economics’ justification, which seeks to exclude psychological factors, is unpersuasive: psychology is necessarily fundamental to any general theory of decision making under uncertainty.
Keywords: ergodicity economics, expected utility theory, decision-making under uncertainty
JEL Classification: A12, B40, B59, D81, D84
Suggested Citation: Suggested Citation