The Limitations of Growth-Optimal Approaches to Decision Making Under Uncertainty

Matthew C. Ford and John A. Kay

Econ Journal Watch, 2023, vol. 20, issue 2, 314–334

Abstract: A new research programme in ‘ergodicity economics’ advanced by Ole Peters and others has reinvigorated interest in growth-optimal approaches to decision making under uncertainty. We show that ergodicity economics is best understood as traditional growth optimisation with a new metaphysical justification. We also show that growth-optimal approaches to decision making are necessarily always incompatible with expected utility theory, and that this imposes limitations upon those approaches. Drawing on this result, we show that ergodicity economics’ justification, which seeks to exclude psychological factors, is unpersuasive: psychology is necessarily fundamental to any general theory of decision making under uncertainty. In contrast, we show that the critiques levelled at utility theories by ‘ergodicity economics’ researchers are based on a misunderstanding of how these theories work.

Keywords: Ergodicity economics; expected utility theory; decision making under uncertainty; growth optimality (search for similar items in EconPapers)
JEL-codes: A12 B40 B59 D81 D84 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ejw:journl:v:20:y:2023:i:2:p:314-334

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