Friday, August 6, 2010

The Brownian Bummer Theorem

There isn't a single google hit for the phrase "Brownian Bummer". I am going to rectify that. All funny phrases that are lucky enough to mean something should be google represented.

Koszegi and Rabin (2009) presents a model of news-utility prospect theory in which people are loss averse over changes in beliefs about future consumption. As a result, people would rather learn about some future outcome (such as the value of their retirement portfolio) all at once rather than updated on a daily basis, since the psychological losses and gains are always, ceteris paribus, dominated by losses due to loss aversion.

An omitted result in the paper is the Brownian Bummer theorem, which says that in the limit, as you update your beliefs more and more frequently, this leads to pure torture (in utility terms of course).

*giggle* I like funny theorem names...

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