Buch, Himesh: Ergodicity Economics and Consumer Preferences

 

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Title: Ergodicity Economics and Consumer Preferences

Name: Himesh Buch

Major: Computer Science

School affiliation: School of Arts and Sciences

Programs: Aresty – RA Program

Other contributors: Barry Sopher, James Hadley, and Aaron Schiener

Abstract: Economic theory has traditionally treated time discounting, or the devaluation in one’s mind of future payoffs compared to present ones, as part of a decision maker’s preferences. A new literature,
sometimes referred to as “Ergodicity Economics,” focuses on alternate decision-making models under
which time discounting is dependent on environmental factors rather than individual preferences. In this study, we begin an investigation of a new model that predicts decision makers will maximize the likelihood of a positive rate of growth in wealth.
We consider the choice between two payment plans under two different environments. Option A is a plan of small but frequent payments, while Option B is a plan of larger payments over longer intervals, both options ending after a fixed number of days. The first environment is one without interest rates, while the second is with compounding interest on the current balance of each account.