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Investment Behaviour under Knightian Uncertainty - An Evolutionary Approach

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  • Terje Lensberg

Abstract

The paper analyzes investment behaviour under Knightian uncertainty by means of a genetic programming algorithm. This is an experimental approach which yields analytical results at a level of generality comparable to that obtained by conventional methods. When the artificial agents receive the same information about the unknown probability distributions, they develop behaviour rules as if they were expected utility maximizers with Bayesian learning rules and logarithmic utility functions. We then introduce asymmetric information, and study how it affects the agents' implicit preferences for risk and uncertainty.

Suggested Citation

  • Terje Lensberg, 1997. "Investment Behaviour under Knightian Uncertainty - An Evolutionary Approach," CESifo Working Paper Series 126, CESifo.
    • Handle: RePEc:ces:ceswps:_126
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    Cited by:

    1. Yu, Zuwei, 2003. "A spatial mean-variance MIP model for energy market risk analysis," Energy Economics, Elsevier, vol. 25(3), pages 255-268, May.
    2. Hans-Werner Sinn, 1999. "Inflation and Welfare: Comment on Robert Lucas," NBER Working Papers 6979, National Bureau of Economic Research, Inc.
    3. Hirshleifer, David & Lo, Andrew W. & Zhang, Ruixun, 2023. "Social contagion and the survival of diverse investment styles," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    4. Huang, Xiaoxia & Yang, Tingting, 2020. "How does background risk affect portfolio choice: An analysis based on uncertain mean-variance model with background risk," Journal of Banking & Finance, Elsevier, vol. 111(C).
    5. Witte, Björn-Christopher, 2012. "Fund managers - Why the best might be the worst: On the evolutionary vigor of risk-seeking behavior," Economics Discussion Papers 2012-20, Kiel Institute for the World Economy (IfW Kiel).
    6. Chen, Shu-Heng, 2012. "Varieties of agents in agent-based computational economics: A historical and an interdisciplinary perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 1-25.
    7. d’Andria, D. & Savin, I., 2018. "A Win-Win-Win? Motivating innovation in a knowledge economy with tax incentives," Technological Forecasting and Social Change, Elsevier, vol. 127(C), pages 38-56.
    8. Terje Lensberg & Klaus Reiner Schenk-Hoppe, 2006. "On the Evolution of Investment Strategies and the Kelly Rule – A Darwinian Approach," Swiss Finance Institute Research Paper Series 06-38, Swiss Finance Institute.
    9. Witte, Björn-Christopher, 2011. "Fund managers - why the best might be the worst: On the evolutionary vigor of risk-seeking behavior," BERG Working Paper Series 81, Bamberg University, Bamberg Economic Research Group.

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