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Rational decisions, random matrices and spin glasses

Author

Listed:
  • Stefano Galluccio
  • Jean-Philippe Bouchaud

    (Science & Finance, Capital Fund Management
    CEA Saclay;)

  • Marc Potters

    (Science & Finance, Capital Fund Management)

Abstract

We consider the problem of rational decision making in the presence of nonlinear constraints. By using tools borrowed from spin glass and random matrix theory, we focus on the portfolio optimisation problem. We show that the number of "optimal" solutions is generically exponentially large: rationality is thus de facto of limited use. In addition, this problem is related to spin glasses with Lévy-like (long-ranged) couplings, for which we show that the ground state is not exponentially degenerate.

Suggested Citation

  • Stefano Galluccio & Jean-Philippe Bouchaud & Marc Potters, 1998. "Rational decisions, random matrices and spin glasses," Science & Finance (CFM) working paper archive 500054, Science & Finance, Capital Fund Management.
    • Handle: RePEc:sfi:sfiwpa:500054
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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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