The Ergodicity Problem in Economics

The Ergodicity Problem in Economics At the risk of being hyperbolic, I think it is one of the most important papers ever published in economics.

Taylor Pearson @TaylorPearsonMe
A way to identify an ergodic situation is to ask do I get the same result
if I: look at one individual’s trajectory across time look at a bunch of individual’s trajectories at a single point in time
If yes: ergodic. If not: non-ergodic.
Economics has a major error: it assumes most economic games are ergodic, but they aren’t. To make an economic decision, I want to know how my personal fortune grows or shrinks under different scenarios, not how the average person’s fortune grows or shrinks.

In Conclusion: Ergodicity economics shows people (rationally) maximize the long-term growth of their wealth. Much of what we call “risk aversion” is rational avoidance of non-ergodic games like Russian Roulette.

Great intro article to Ergodicity I think you’d like.

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