What is the consensus (if any) on Peters "The ergodicity problem in economics" (2019)?

External question — Economics Stack Exchange Author: Richard Hardy Original post: https://economics.stackexchange.com/questions/47097 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Peters (2019) made a splash criticizing the theory of expected utility on the grounds that it implicitly assumes ergodicity where this is unwarranted. He stated this applies widely in economics, to the point of making the whole field suspect: economics is firmly stuck in the wrong conceptual space. Because the core mistake is 350 years old, the corresponding mindset is now firmly institutionalized. He also proposed a fix of the theory based on maximizing time-average growth rate. Doctor et al. (2020) responded stating that Peters essentially missed the target. Economists are aware of the problem (and have been for a while) and as a rule do not apply the theory of expected utility in the naive way that Peters suggests they do (though of course there are exceptions, as everyone tends to make a mistake every now and then). Briefly, what Peters got right is not new, while what is new is not right. Peters (2020) responded that he does not see much disagreement between what he originally said and what Doctor et al. (2020) state. Among some other reactions, Andreozzi (2021) and Kim ( undated, a ; undated, b ) were largely skeptical of Peters. So there is the original paper and the subsequent exchange with Doctor et al., and a couple of other responses. There must also have been some reactions of economists in, say, blogs and other spaces, given the publicity the original paper has received. Do we have a consensus among economists regarding the merit (relevance, validity) of Peters' critique? This is not a question of opinion. I am trying to objectively gauge the consensus in the profession, i.e. has the matter become clear to most and has the majority opinion converged on anything concrete. References to back up an answer would be most appreciated. The question is motivated by a discussion in the comments of "Why are utility functions typically assumed to be concave?" References Andreozzi, L. (2021). Ergodicity in Economics: a Decision Theoretic Evaluation . Doctor, J. N., Wakker, P. P., & Wang, T. V. (2020). Economists’ views on the ergodicity problem . Nature Physics, 16 (12), 1168-1168. Kim, M. (undated, a). A comment on ergodicity economics . Kim, M. (undated, b). A letter to economists and physicists: on ergodicity economics . Peters, O. (2019). The ergodicity problem in economics . Nature Physics, 15 (12), 1216-1221. Peters, O. (2020). Reply to: Economists’ views on the ergodicity problem . Nature Physics, 16 (12), 1169-1169.

External answer — Economics Stack Exchange Author: 1muflon1 Original post: https://economics.stackexchange.com/a/47098 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Well there is no opinion poll among economists on specifically this problem, but what can be judged from reaction of economists the consensus is that the Ole Peters paper is misguided and irrelevant at best. I think the economists' consensus was already very well and succinctly summed up by Doctor, Wakker and Wang you cite (and is an example of this phenomena). For starters, on twitter R. Thaler (Nobel Prize) called it hogwash , if a Nobel Prize winner for work on decision making and behavioral economics so readily dismisses your idea about how humans make decision under uncertainity its a red flag. This work was also criticized by other notable economists such as Farmer . However, even more can be judged by the non-reaction of economists. The Ole Peters paper was so widely circulated that it is safe to assume that majority of economists know about (I would bet that if you will ask at your university department about "that ergodicity paper" most of them will know what you are talking about). It is unbelievable but this paper got so much free press that it should an case study in marketing (it was covered and uncritically cited by major media outlets such as Bloomberg and it even got a TED talk ). So it is safe to assume at very least most economists are aware of the Peter's work existence. Yet, if you look at which articles cite the Peters work, you will see most are either A) criticisms, B) not even in the field of economics and C) save for the criticisms most are not published in any reputable journal. The Peters work is now already 2 years old, given that it is so widely known, and given that the work basically claims that our whole expected utility framework even in its general and behavioral applications is both wrong and not useful, you would expect that people would jump at the idea and start widely applying it, or at least testing it. This is because expected utility is widely used workhorse model, and even though one can criticize it on a behavioral grounds it remains useful, the same way as Newtonian Physics, remains useful in presence of general relativity. In the areas where it is not useful we have behavioral models that still build upon the idea of expected utility or alternative theories that do not require ergodicity (e.g. like prospect theory etc., see Kahneman Thinking Fast and Slow for discussion). Yet we do not see people at mass abandoning either expected utility or other more generalized concepts amass. Rather the paper was met by a silence occasionally interrupted by cricket's chirp. Now either there is some conspiracy going on in our profession, or simply most economists do not even consider the paper worth while to respond to or engage with. Given how large our profession is conspiracy is unlikely (given that likelihood of keeping conspiracy secret declines drastically with number of people involved in e.g. see work of Grimes 2016 on this). So really the most straightforward explanation for the utter lack of influence of the paper on profession is that the general consensus is that it is not even worth discussing. One could also argue that the idea is being suppressed by the 'old guard'. There are several historical examples of new ideas in a field being suppressed, for some time , by established scientists e.g. like this example . While it is not impossible that is happening to the ergodicity idea as well, one has to remember that for any good idea that is too eagerly suppressed by the 'old guard' there is always a large number of ideas that were dismissed by the old guard and actually also turned out to be bad or irrelevant. A good example are ideas like EM drive or think of all the 'theories' like ancient astronaut theory . So while it could turn out that ergodicity is being suppressed, it is more likely that it is actually not. Of course, an important caveat is that absence of evidence is not necessary evidence of absence. Ideally, you would want some poll among economists, or at least well known economists. This being, said the evidence and lack of thereof that we currently have strongly points toward the conclusion that the consensus is that Peters work is irrelevant.

External answer — Economics Stack Exchange Author: bbecon Original post: https://economics.stackexchange.com/a/47118 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Junior econ professor here. I saw Ole Peter's work and I was intrigued, so I actually looked into it to see if there was something original/insightful for me to learn. I even run a little simulation of what he calls the "St. Petersburg Paradox", to make sure I understood what the guy is actually talking about. Just to be clear, I didn't spend days looking into this. I "only" spent a few hours, until I was confident that I had an informed opinion. I eventually came to the conclusion that his point has actually little to do with the ergodicity of stochastic processes, which is a well-defined concept that (i agree) most economists are probably not familiar with. However, most time-series econometricians are definitely familiar with it https://en.wikipedia.org/wiki/Ergodic_process His point has instead a lot to do with what's called Jensen's inequality, something that most economists learn by end of year 1 of grad school https://en.wikipedia.org/wiki/Jensen's_inequality What settled it for me was going online, and finding out that a much more senior colleague of mine (who unlike me is a published expert on time series) had - completely independently - reached a similar conclusion: https://www.rogerfarmer.com/rogerfarmerblog/2020/5/6/the-peters-paradox So I initially thought "well the poor guy [Peters] is just being naive: he thinks he's made a discovery and literally he's just struggling with Jensen's inequality". That is until I saw his Ted Talk and looked into his background (he works at a Climate Change/Social Justice center). Now I'm not so sure he's being naive. I think more likely he's muddying the waters on purpose. He is giving this "stuff" (calling it a theory is too much of a stretch in my view) the pompous name of "ergodicity" so that he can sound smart and go around pontificating about inequality, climate change etc. and argue for extreme policies that would be rejected by traditional economists, because (so goes his argument) they don't understand how randomness and time interact. That's a very old trick: you come up with some pseudo-scientific mumbo-jumbo full of technical jargon from different disciplines that most people can't understand, and then you use that to put yourself forward as an "expert", and advance ideological positions as if they were based on hard science. Now what to make of the fact that this "ergodicity" stuff got published in Nature Physics? Well we should note that in this case the editors went out of their way and published an article about economics, which is outside of their field of expertise - with predictable consequences. That is why we have specialized journals for different disciplines. Now if you don't believe me and you suspect that we are biased because we are "traditional economists", of course that's a possibility. Then my encouragement is: do what I did. Go ahead and figure it out for yourself. Read his paper, read the two wiki articles I linked, pick up a statistics textbook. And if you do figure out something interesting out of this, come back and do let me know. I'm happy to be proven wrong.

External answer — Economics Stack Exchange Author: Luciano Andreozzi Original post: https://economics.stackexchange.com/a/47178 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I’am the guy who wrote the short note that was mentioned in the original question. You can reach the note here. https://osf.io/preprints/socarxiv/axkfg/ I got interested in Peter's paper because of my interest in evolutionary games, where the question of whether the equilibrium selection process is or is not ergodic plays a crucial role. I agree that most economists find Peters' contribution irrelevant. However, by reading Peters’ original paper and Wakker e.a. reaction to it, a casual reader may get the impression that Peters has a point after all, but that he tends to oversell his results. The same impression one gets by reading other informal contributions written online by economists, including the present discussion. In my note, I provide a pedantic presentation of Peters' running example and prove a very simple proposition, which, if correct, may put the entire matter at rest. This proposition says that in Peters’ example no subject who obeys the axioms of EU would accept the lottery unless he has an unbounded utility for money. In this respect, Peters' example is just a more involved instance of the St. Petersburg paradox and can be solved the way K. Menger solved the original one in 1934: the paradox only arises because we let utility for money be unbounded. Notice that it is easy to be fooled on this matter: risk-aversion will not do the trick, just as Menger proved in 1934. The reactions to my result have been mixed. O. Peters was extremely polite, but he said that he receives way too many contributions to ergodicity economics to evaluate them all. No follower of ergodicity economics has shown any interest. I had a brief mail exchange with P. Wakker, and he alerted me about the difference of opinion between K. Arrow (who believed unbounded utility to be a violation of EU) and P. Samuelson (who held the opposite view). In the end, he convinced me to side with Samuelson, although I still think Arrow's position may be defended. In any case, my result proves that Peters provided a very small contribution to a literature that in economics is half a century old. (In fact, you can find Samuelson’s view on Peters’ example in a PNAS paper published in 1971.) I had some encouragement from some respected decision theorists, but most economists were not interested. From a prominent game theorist, I got a reply that rang something like: “nice work, but I have no patience for this matter”. Finally, the note has been downloaded more than 100 times, but none has sent me an email for a comment or for any other reason. I concluded that the profession is so busy that even a moderately complex result as mine is seen as overkill for ergodicity economics. Anyway, any comment is welcomed! Luciano PS If you have a bent for philosophical digressions, my note also discusses Peters’ claim that, when facing a compound lottery, EU assumes that a decision-maker experiences all alternative histories. In this case, Peters’ argument collides with the fact that EU is based on the independence axiom, which forces a DM to consider only the branch of the tree she happens to visit. In fact, just the opposite of what Peters claims is true.

External answer — Economics Stack Exchange Author: NeverMind Original post: https://economics.stackexchange.com/a/59710 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. The final consensus is probably that there is no consensus. But most people have misunderstood the proposition of Ergodicity Economics (EE) anyway. I even wonder if these people have ever read Peters' paper at all, because it clearly states the following rather at the end of the paper (the bold formatting is mine): That the geometric mean exp〈ln x〉 is less than the arithmetic mean 〈x〉 was known to Euclid (Elements, Book V, Proposition 25), and it is a special case of Jensen’s inequality of 1906. Its connection to gambling and investment problems was noted by Whitworth in 1870, is implied by Itô’s work of 1944, and is well known among gamblers as Kelly’s criterion of 1956. Our modest contribution is to frame these observations as a question of ergodicity, which we have found to be a fruitful perspective . It enforces physical realism by precluding interactions among members of a statistical ensemble, it enables us to consider dynamics other than additive and multiplicative (corresponding to linear and logarithmic utility functions), and it naturally leads to treatments of problems whose solutions are less readily visible in previous framings of the issue. Peters' message in his paper is nothing fundamentally new and is also not claimed to be. He is well aware that the basic concepts on which EE is based have been known for a long time. In a sense, his paper formalizes old knowledge, which is useful (also for economics) as it enables a more mathematically rigorous treatment of the matter. His emphasis is on the fact that decision-making over time typically differs for an individual and a group of independent individuals (depending on the (non)-ergodicity of the problem under consideration). While the latter on aggregate operates in the regime of large numbers, the former does not. In particular, individuals face only a single path over time, which is why probability distributions (or their derivatives in the form of expected values or higher moments) typically don't matter to them in contrast to time-average growth rates. As Peters' work reveals, this fact was fixed by economics in the view of homo oeconomicus by introducing a logarithmic utility function which transforms the maximization of the rate of change of expected utility into the maximization of a time-series growth rate in the case of multiplicative dynamics (e.g. compound growth). In summary, EE has not developed anything new. It has helped us to formalize and better understand the key differences of decision-making between an individual and a group of independent individuals. Both perspectives are legitimate perspectives and neither of them is right or wrong in the first place. When to use which perspective ultimately depends on the topic or perspective in question. But this insight itself is an important gain in knowledge, formalized by the ergodicity question and rigorously linked to the underlying dynamics (instead of putting forward obscure psychological arguments for rational decision-making).