Testing by Betting while Borrowing and Bargaining
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arXiv
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| Format: | Preprint |
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2024
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| _version_ | 1866918495019597824 |
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| author | Wang, Hongjian Pérez-Ortiz, Muriel F. Koolen, Wouter M. Ramdas, Aaditya |
| author_facet | Wang, Hongjian Pérez-Ortiz, Muriel F. Koolen, Wouter M. Ramdas, Aaditya |
| contents | Testing by betting has been a cornerstone of the game-theoretic statistics literature. One bets against the null hypothesis, and the accumulated wealth $W_t$ quantifies the evidence against the null hypothesis after $t$ rounds, and the null can be rejected at level $α$ whenever $W_t \geq 1/α$. A key assumption permeating the literature is that one cannot bet more money than they currently have (the wealth must stay nonnegative). In this work, we examine the consequences of allowing the bettor to borrow money in each round (for example after going bankrupt). Specifically, we ask how the threshold of $1/α$ must be accordingly adjusted to retain the desired level $α$. Our findings are twofold. First, if the new rejection rule is $W_t \geq g(α,L_t)$ where $L_t$ is the total liability at time $t$, then we show that $g(α,0)>1/α$ if $g(α,L_t)<\infty$ for any $L_t > 0$; in words, we must pay for the possibility of borrowing, even if in fact we do not borrow. Second, and in contrast to the first, if one employs a path dependent threshold $h(α,W_0,L_1,\dots,W_{t-1},L_t)$, that is a function of past leverage ratios, then there is in fact no extra price to pay for the possibility of borrowing. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2407_11465 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Testing by Betting while Borrowing and Bargaining Wang, Hongjian Pérez-Ortiz, Muriel F. Koolen, Wouter M. Ramdas, Aaditya Statistics Theory Probability Mathematical Finance Methodology Testing by betting has been a cornerstone of the game-theoretic statistics literature. One bets against the null hypothesis, and the accumulated wealth $W_t$ quantifies the evidence against the null hypothesis after $t$ rounds, and the null can be rejected at level $α$ whenever $W_t \geq 1/α$. A key assumption permeating the literature is that one cannot bet more money than they currently have (the wealth must stay nonnegative). In this work, we examine the consequences of allowing the bettor to borrow money in each round (for example after going bankrupt). Specifically, we ask how the threshold of $1/α$ must be accordingly adjusted to retain the desired level $α$. Our findings are twofold. First, if the new rejection rule is $W_t \geq g(α,L_t)$ where $L_t$ is the total liability at time $t$, then we show that $g(α,0)>1/α$ if $g(α,L_t)<\infty$ for any $L_t > 0$; in words, we must pay for the possibility of borrowing, even if in fact we do not borrow. Second, and in contrast to the first, if one employs a path dependent threshold $h(α,W_0,L_1,\dots,W_{t-1},L_t)$, that is a function of past leverage ratios, then there is in fact no extra price to pay for the possibility of borrowing. |
| title | Testing by Betting while Borrowing and Bargaining |
| topic | Statistics Theory Probability Mathematical Finance Methodology |
| url | https://arxiv.org/abs/2407.11465 |