The AIP journal Chaos announced today its most-read papers of 2016. Leading the list is “Evaluating gambles using dynamics” by LML resident Fellow Ole Peters and Santa Fe Institute Professor Murray Gell-Mann.
The paper is a careful revisiting of a key assumption in economics that enables the development of a complete new economic formalism. The authors reject the standard economics model where individuals optimize expectation values of some quantity. Expectation values are mathematical objects — interpreted physically they correspond to averages over parallel worlds, something no human individual has access to. These mathematical objects lie at the heart of the predominant neoclassical economic formalism. Introduced in 1654, optimizing expectation values now defines what economics considers rational behavior.
Peters and Gell-Mann propose, instead, a model where humans act so as to optimize what happens to them over time. In the late 19th century scientists learned that behavior across parallel universes may not equal behavior over time. Importing this insight into economics produces a different model of rationality, and one, they argue, that is far closer to human experience. After all, we live through time, not across parallel worlds.
An interview with the authors, available here, was published by the American Institute of Physics at the time of publication.