Solvency Games

Abstract. We study the decision theory of a maximally risk-averse investor — one whose objective, in the face of stochastic uncertainties, is to minimize the probability of ever going broke. With a view to developing the mathematical basics of such a theory, we start with a very simple model and obtain the following results: a characterization of best play by investors; an explanation of why poor and rich players may have different best strategies; an explanation of why expectationmaximization is not necessarily the best strategy even for rich players. For computation of optimal play, we show how to apply the Value Iteration method, and prove a bound on its convergence rate.

• Type: Conference
• Year: 2008
• Where: FSTTCS
• Authors: Noam Berger, Nevin Kapur, Leonard J. Schulman, Vijay V. Vazirani
• Keywords: FSTTCS 2008, Rich Players, Risk-averse Investor, Software Engineering, Value Iteration Method