Reply to "The Limitations of Growth-Optimal Approaches to Decision Making Under Uncertainty"

Hulme, OliverCopenhagen Univ Hosp Amager & Hvidovre, Danish Res Ctr Magnet Resonance, Copenhagen, Denmark.;Univ Copenhagen, Dept Psychol, Copenhagen, Denmark. (author)

In an article appearing concurrently with the present one, Matthew Ford and John Kay put forward their understanding of a decision theory which emerges in ergodicity economics. Their understanding leads them to believe that ergodicity economics evades the core problem of decisions under uncertainty and operates solely in a regime where there is no measurable uncertainty. If this were the case, then the authors' critical stance would be justified and, as the authors point out, the decision theory would yield only trivial results, identical to a flavor of expected-utility theory. Here we clarify that the critique is based on a theoretical misunderstanding, and that uncertainty-quantified in any reasonable way-is large in the regime where the model operates. Our resolution explains the success of recent laboratory experiments, where ergodicity economics makes predictions different from expected-utility theory, contrary to the claim of equivalence by Ford and Kay. Also, a state of the world is identified where ergodicity economics outperforms expected-utility theory empirically.

Vanhoyweghen, ArneVrije Univ Brussel, Data Lab, B-1050 Brussels, Belgium.;Vrije Univ Brussel, Mobilise, B-1050 Brussels, Belgium. (author)
Connaughton, ColmLondon Math Lab, London W6 8RH, England.;Univ Warwick, Math Inst, Coventry CV4 7AL, England. (author)
Peters, OleLondon Math Lab, London W6 8RH, England.;Santa Fe Inst, Santa Fe, NM 87501 USA. (author)
Steinkamp, SimonCopenhagen Univ Hosp Amager & Hvidovre, Danish Res Ctr Magnet Resonance, Copenhagen, Denmark. (author)
Adamou, AlexanderVesselsValue Ltd, London W14 0QL, England. (author)
Baumann, Dominik,Ph.D.1991-Uppsala universitet,Avdelningen för systemteknik,Aalto Univ, Dept Elect Engn & Automat, Espoo, Finland.(Swepub:uu)domba998 (author)
Ginis, VincentVrije Univ Brussel, Data Lab, B-1050 Brussels, Belgium.;Harvard Univ, Sch Engn & Appl Sci, Cambridge, MA 02138 USA. (author)
Verbruggen, BertVrije Univ Brussel, Data Lab, B-1050 Brussels, Belgium. (author)
Price, JamesUniv Warwick, Math Inst, Coventry CV4 7AL, England. (author)
Skjold, BenjaminCopenhagen Univ Hosp Amager & Hvidovre, Danish Res Ctr Magnet Resonance, Copenhagen, Denmark.;London Math Lab, London W6 8RH, England. (author)
Copenhagen Univ Hosp Amager & Hvidovre, Danish Res Ctr Magnet Resonance, Copenhagen, Denmark.;Univ Copenhagen, Dept Psychol, Copenhagen, Denmark.Vrije Univ Brussel, Data Lab, B-1050 Brussels, Belgium.;Vrije Univ Brussel, Mobilise, B-1050 Brussels, Belgium. (creator_code:org_t)

In:Econ Journal Watch: Institute of Spontaneous Order Economics20:2, s. 335-3481933-527X

By the author/editor: Hulme, Oliver; Vanhoyweghen, Ar ...; Connaughton, Col ...; Peters, Ole; Steinkamp, Simon; Adamou, Alexande ...; show more...; Baumann, Dominik ...; Ginis, Vincent; Verbruggen, Bert; Price, James; Skjold, Benjamin; show less...

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