Switching as an Investment Strategy: Revisiting Parrondo’s Paradox

Avik Chakrabarti ()
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Avik Chakrabarti: University of Wisconsin-Milwaukee

Chapter 14 in Analytical Issues in Trade, Development and Finance, 2014, pp 231-239 from Springer

Abstract: Abstract This chapter highlights that randomly switching investments between assets with negative expected returns can, indeed, yield positive expected returns. The analytical apparatus, in line with those adapted to Parrondo’s paradox, is based on stochastic properties of discrete-time Markov chains. An intuitive explanation of the result is provided in terms of Brownian ratchets.

Keywords: Investment; Uncertainty; Parrondo’s paradox; Markov chains; Brownian; Ratchets (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-81-322-1650-6_14

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DOI: 10.1007/978-81-322-1650-6_14

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