Mathematical Finance

Mathematical psychology of behavioural dynamics
2022-10-14 12:00 - 13:00 (America/Chicago) | via Zoom
Speaker: Prof. Dorje C. Brody, Mathematics, University of Surrey
Abstract: The behaviour of a person is dominated by their ability to process uncertain information available to them. When there is a range of alternatives to choose from, the likelihoods assigned by the person to these different alternatives determine the state of their mind in relation to that particular choice. When new information arrives, the person’s perspective changes, generating behavioural dynamics. To model this behaviour, it is highly effective to use the mathematics of signal processing. In this scheme, it is then possible to represent (i) reliable information, (ii) noise, and (iii) disinformation in a unified framework. Because the approach is designed to characterise the dynamics of the behaviour of people, it is possible to quantify the impact of information control, including those resulting from the dissemination of disinformation. It can be shown that if a decision maker assigns an exceptionally high weight on one of the alternative realities, then under the Bayesian logic their perception hardly changes in time even if evidences presented indicate that this alternative corresponds to a false reality. Thus confirmation bias need not be incompatible with Bayesian updating; contrary to what is widely believed in psychology. The information-based approach, originated in financial modelling, when applied to psychology, also poses new challenges in stochastic analysis, which will be discussed briefly. The talk will be an extended version of an informal article in: https://theconversation.com/the-mathematics-of-human-behaviour-how-my-new-model-can-spot-liars-and-counter-disinformation-185309.
