STICERD Economic Theory Seminars
The Importance of Unlikely Events
Jakub Steiner (University of Zurich and CERGE-EI), joint with Maya Eden and Larry Samuelson
Thursday 05 March 2026 15:30 - 17:00
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About this event
We study an expected-utility maximizer who controls a stochastic growth process over a long horizon. Using large deviations theory, we show that optimal actions are generically driven by responses to arbitrarily unlikely contingencies. Unrealistic fears of ruin preclude extraordinary wealth, while unrealistic hopes for extraordinary wealth induce choices that almost surely disappoint. We show that a CRRA investor assigns zero value to perfect information at the exponential (growth-rate) scale: she will not sacri ce even an arbitrarily small fraction of long-run growth rate to learn the frequency of future economic shocks. This extends to broader utilities with hedging.
Economic Theory Seminars are held on Thursdays in term time at 15:30-17:00, both ONLINE and IN PERSON in SAL 3.05.
Seminar organisers: Dr Paula Ferreira Onuchic and Dr Christopher Sandmann.
For further information please contact Sadia Ali: s.ali43@lse.ac.uk.
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