Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098040 | Journal of Economic Dynamics and Control | 2017 | 23 Pages |
Abstract
Time inconsistency has been a thorny issue in many economic and financial decision making problems, especially when risk measures are involved in performance criteria. We develop in this paper a two-tier planner-doer game framework with self-coordination. By aligning the global interest of the planner and the local interests of the doers by applying suitable penalty functions, a degree of internal harmony (measured quantitatively by the expected cost of self-coordination) can be achieved by the self-coordination policy. We establish an axiom system for modified preferences, under which the self-coordination policy can be obtained by solving a corresponding optimization problem. We then apply our game framework successfully in dynamic mean-variance portfolio selection.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Xiangyu Cui, Duan Li, Yun Shi,