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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26590
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| Title: | Survival and the Art of Profit Maximization |
| Authors: | Dutta, Prajit K.
Sundaram, Rangarajan K. |
| Issue Date: | 3-Apr-2001 |
| Series/Report no.: | FIN-01-036 |
| Abstract: | We study the relationship between rationality and economic survival in a
simple dynamic model, where agents from different populations interact
repeatedly through random matching. An explicit criterion
("bankruptcy") determines whether agents survive each
interaction; all agents are presumed to be aware of this criterion.
Survival in each interaction depends on two factors: the strategies
agents adopt when they interact, and the wealth levels they bring to the
game. The model is completely symmetric with the only difference between
the agents of different populations being their objectives. We consider
the case where there are two populations of agents in which all agents
from one group have as their objective, maximizing the expected profits
from each interaction, while all the agents from the other attempt
simply to maximize the probability of surviving (i.e., not going
bankrupt in) the interaction. We show that under the equilibrium of
dynamics, the proportions of each group in the total population must be
bounded away from zero, but the balance is in favor of the
survival-probability maximizers in that their numbers as a fraction of
total population must always exceed 1/2, and can be arbitrarily close to
unity. On the other hand, the fraction of total wealth controlled by the
expected profit maximizers must also be at least 1/2, and can
asymptotically tend to unity. |
| URI: | http://hdl.handle.net/2451/26590 |
| Appears in Collections: | Finance Working Papers
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