January 2021
Game theory studies strategic interaction between rational decision-makers, and some of its earliest applications were to economic behavior. The discipline has earned enough cultural attention that the parallel to your finances is probably already clear – your portfolio is designed and built to optimally maximize the utility of your financial life plan. Perhaps it’s more specifically like an asymmetric game, where “players” have different strategy sets (the plan tailored to you) with different payoffs (your individual goals). Of course, we know very well that money decisions aren’t always purely rational. Luckily, your plan also recognizes this, and it seeks to harness the power of your emotional brain in a way that contributes to financial success. Read on for our look at both sides of the coin: math and mind.