Expected Value Optimization, Client-Centric Planning, & Growth Optimal Selection: A Centuries-long, Three-Braided Conceptual Chronology

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Abstract

The roots of (i) expected value optimization, (ii) client-centric planning, and (iii) growth optimal selection twist-and-turn around one another over a centuries-long research history. This paper traces each strand chronologically. It also highlights their interconnections. Its goal is to connect what practitioners already know with Ergodicity Economics, because it is the next wave of product development and client advice.

We cannot individually experience ensemble averages, thus using Expected Value as the default investment decision criterion has created a large catalog of empirical puzzles, paradoxes, and anomalies. Financial Economics uses mathematics as a language to define the structure of investment problems. Ergodicity Economics (EE) restores mathematics as a method of skepticism to question the structure of economic and investment problems. This change has created a growing catalog of solutions to the traditional list of empirical puzzles, paradoxes, and anomalies.

The formalization of embedding randomness in Time by Ole Peters in 2011, as an alternative to embedding randomness in the Ensemble, is a critical development for the financial industry. At a personal level, it clarified the conceptual meaning of a path through three start-ups over three decades. This path went from expected value portfolio optimization, to client-centric retirement planning, and now growth optimal product selection.

Following EE’s example, the rapidly growing number of research papers becomes more manageable when one starts with the foundational papers. Thus, this narrated conceptual chronology starts each conceptual entry with the earliest research papers available, and lists the matching entries in ascending chronological order.

This narrated conceptual chronology proved to be a helpful exercise to connect the dots between Financial Economics and Ergodicity Economics. It also proved to be a productive platform for the development of additional content: Identifying and rank-ordering the empirical puzzles, paradoxes, and anomalies of Financial Economics that matter the most for practitioners, and that could benefit from solutions based on Ergodicity Economics.

Versions

➤  Version 2 (2020-10-13)

Citation

Francois Gadenne (2020). Expected Value Optimization, Client-Centric Planning, & Growth Optimal Selection: A Centuries-long, Three-Braided Conceptual Chronology. Researchers.One, https://researchers.one/articles/Expected-Value-Optimization-Client-Centric-Planning-and-Growth-Optimal-Selection-A-Centuries-long-Three-Braided-Conceptual-Chronology/e2198c63dc750310a3d6ffcb/v2.

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