Ergodicity economics with an eye to probability weighting and behavioural economics

Mark Kirstein

DAAD PRIME Fellow in Ergodicity Economics

Ergodic theory studies the behaviour of averages and arose from the study of the ergodicity problem in the foundations of statistical mechanics. Ergodicity Economics (EE) studies the ergodicity problem in the context of economics, more specifically the conditions under which expectation values (ensemble averages) coincide with time averages. As it turns out, ergodicity is also a foundational issue especially in the evaluation of lotteries and decision making under uncertainty. Although the evaluation of gambles is at the basis of formal economics, the community is mostly unfamiliar with the concept of ergodicity. This leaves ample opportunities for joint future research projects.

Embedding economics within historical time is a long-desired desideratum. The time-average growth rate is derived from EE as a new rationality norm that is compatible to adaptive/ecological rationality, which again is well studied at MPI-HD.

The seminar is shaped to explore future collaborations, thus I will briefly highlight:

  • the general idea of the recent research programme coined Ergodicity Economics [1, 3, 5],
  • some experimental results [2],
  • a mechanistic explanation of probability weighting [4, 6] and
  • conclude with current research questions.

[1] Kirstein, Mark (2019). “The Ergodicity Problem in Economics. The Advent of Ergodicity Economics”. PhD thesis. TU Dresden. URL: bit.ly/mkdissr1 .

[2] Meder, David, Finn Rabe, Tobias Morville, Kristoffer Madsen, Hartwig R. Siebner and Oliver J. Hulme (2019). ‘Ergodicity-breaking reveals time optimal economic behavior in humans’. https://arxiv.org/abs/1906.04652

[3] Peters, Ole and Alexander Adamou (2018). Ergodicity Economics. Lecture Notes. 2018/06/30. URL: https://ergodicityeconomics.com/lecture-notes/

[4] Peters, Ole, Alexander Adamou, Mark Kirstein and Yonatan Berman (2020). “What are we weighting for? A mechanistic model for probability weighting”. bit.ly/lml-pw-r1

[5] Peters, Ole (2019). “The ergodicity problem in economics”. Nature Physics 15 (12), 1216–1221. https://doi.org/10.1038/s41567-019-0732-0

[6] Peters, Ole (6th Mar. 2020). “Probability weighting and Ergodicity Economics”. Ergodicity Economics. https://ergodicityeconomics.com/2020/03/06/probability-weighting-and-ergodicity-economics

Date & Time

Thursday 11th June 2020
11.00-12.00 (CEST)