On the existence of personal equilibria

TL;DR

This paper proves that personal equilibria exist in multistep, incomplete financial markets where investors compare outcomes to a reference, extending the theoretical understanding of such models.

Contribution

It establishes the existence of personal equilibria in complex financial market models, a result previously unconfirmed in such settings.

Findings

Existence of personal equilibrium in multistep incomplete markets

Applicability under technical assumptions

Theoretical confirmation of equilibrium existence

Abstract

We consider an investor who, while maximizing his/her expected utility, also compares the outcome to a reference entity. We recall the notion of personal equilibrium and show that, in a multistep, generically incomplete financial market model such an equilibrium indeed exists, under appropriate technical assumptions.