Utility Function from Maximum Entropy Principle

TL;DR

This paper applies the maximum entropy principle to derive the utility function of economic agents in equilibrium, linking market wealth distribution to insurance pricing.

Contribution

It introduces a novel approach to derive utility functions from maximum entropy principles in economic systems.

Findings

Derived the market's wealth density function using maximum entropy.

Connected the density function to insurance pricing models.

Established a method to obtain utility functions from entropy principles.

Abstract

We apply the maximum entropy principle to economic systems in equilibrium and find the density function for the market's wealth. This is the same as price density which is used for insurance pricing. The risk aversion parameter of the agent then it's utility function with respect to this density is derived.