Decision theory and stochastic growth

0575747 - NHÚ 2024 RIV US eng J - Journal Article
Robson, A. - Samuelson, L. - Steiner, Jakub
Decision theory and stochastic growth.
American Economic Review: Insights. Roč. 5, č. 3 (2023), s. 357-376. ISSN 2640-205X. E-ISSN 2640-2068
EU Projects: European Commission(XE) 770652 - BEHAVFRICTIONS
Institutional support: RVO:67985998
Keywords : stochastic growth * rational inattention * wishful thinking
OECD category: Economic Theory
Method of publishing: Limited access
https://www.aeaweb.org/articles?id=10.1257/aeri.20220456

This paper examines connections between stochastic growth and decision problems. We use tools from the theory of large deviations to show that wishful thinking decision problems are equivalent to utility maximization problems, both of which are equivalent to growth maximization under idiosyncratic risk. Rational inattention problems are equivalent to growth-optimal portfolio problems, both of which are equivalent to growth maximization under aggregate risk. Stochastic growth generates extreme inequality, with nearly all wealth eventually held by those who happen to have faced empirical distributions that match the solution to the wishful thinking or rational inattention problem.
Permanent Link: https://hdl.handle.net/11104/0345480