THIS ‘FIX’ FOR ECONOMIC THEORY CHANGES EVERYTHING FROM GAMBLES TO PONZI SCHEMES
Aruba, December 5, 2019 – Whether we decide to take out that insurance policy, buy Bitcoin, or switch jobs, many economic decisions boil down to a fundamental gamble about how to maximize our wealth over time. How we understand these decisions is the subject of a new perspective piece in Nature Physics that aims to correct a foundational mistake in economic theory.
According to author Ole Peters (London Mathematical Laboratory, Santa Fe Institute), people’s real-world behavior often “deviates starkly” from what standard economic theory would recommend. Take the example of a simple coin toss: Most people would not gamble on a repeated coin toss where a heads would increase their net worth by 50%, but a tails would decrease it by 40%.
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