Investment behavior under Knightian uncertainty - an evolutionary approach

Article Abstract:

The use of genetic programming methods in the generation of hypotheses about rational expectations is explored in situations where explicit maximization was not well defined. The application of these methods in an investment decision problem with Knightian uncertainty is also discussed. It is shown that when artificial agents receive the same information about the unknown probability distributions, they tend to create behavior rules that are expected utility maximizers with Bayesian learning rules.

Research, Usage, Bayesian statistical decision theory, Bayesian analysis, Game theory, Rational expectations (Economics), Uncertainty

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Portfolio choice with Knightian uncertainty

Article Abstract:

A portfolio choice model that assumes the lack of certainty by agents of the existence of an authentic model as well as the absence of a subjective probability distribution is presented. The uncertainty is called Knightian uncertainty. The model tackles the problem of risk as well as uncertainty minimization. It is characterized by frequency domains and is generally complex as it involves a wide range of frequency distributions to come up with a more refined optimization result.

Portfolio management

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Variations in risk and fluctuations in demand: a theoretical model

Article Abstract:

A simple irreversible investment model is extended through the inclusion of a stochastic process for the risk level. An increase in risk raises the value of waiting which compels the agent to allow greater deviations from the target level before making adjustments, unless the high-risk period ends. The consequence is that this effect is stronger if the high-risk periods are expected to be shorter. Therefore, comparative statics may work against the effects of risk fluctuations.

Risk (Economics), Stochastic processes

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