Decision Theory and Stochastic Growth

Arthur Robson, Larry Samuelson and Jakub Steiner

American Economic Review: Insights, 2023, vol. 5, issue 3, 357-76

Abstract: 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.

JEL-codes: D31 D81 D82 D83 G51 O41 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aeri.20220456 (application/pdf)
https://www.aeaweb.org/doi/10.1257/aeri.20220456.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Decision Theory and Stochastic Growth (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aerins:v:5:y:2023:i:3:p:357-76

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/aeri.20220456

Access Statistics for this article

American Economic Review: Insights is currently edited by Amy Finkelstein

More articles in American Economic Review: Insights from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().