Editing Equity premium puzzle (section)

=== Information derivatives ===

The simplest scientific interpretation of the puzzle suggests that consumption optimization is not responsible for the equity premium. More precisely, the timeseries of aggregate consumption is not a leading explanatory factor of the equity premium.<ref name="Soklakov2020S">{{cite encyclopedia 
|last1=Soklakov |first1=Andrei N.
|year=2020 
|title=One trade at a time -- unraveling the equity premium puzzle
|url=https://www.mdpi.com/1099-4300/22/8/860/s1 
|encyclopedia=Supplementary Materials for "Economics of Disagreement", Entropy, 22(8):860 }}</ref>

The human brain is (simultaneously) engaged in many strategies. Each of these strategies has a goal. While individually rational, the strategies are in constant competition for limited resources. Even within a single person this competition produces a highly complex behavior which does not fit any simple model.<ref name="Soklakov2020">{{cite journal 
|last1=Soklakov |first1=Andrei N.
|year=2020 
|title=Economics of Disagreement -- Financial Intuition for the Rényi Divergence 
|journal=Entropy 
|volume=22
|issue=8 
|page=860 
|doi=10.3390/e22080860 |pmid=33286632
|pmc=7517462
|arxiv=1811.08308
|bibcode=2020Entrp..22..860S
|doi-access=free
}}</ref>

Nevertheless, the individual strategies can be understood. In finance this is equivalent to understanding different financial products as information derivatives i.e. as products which are derived from all the relevant information available to the customer. If the numerical values for the equity premium are unknown, the rational examination of the equity product would have accurately predicted the observed ballpark values.<ref name="Soklakov2020S" /><ref name="Soklakov2020" />

From the information derivatives viewpoint consumption optimization is just one possible goal (which never really comes up in practice in its pure academic form). To a classically trained economist this may feel like a loss of a fundamental principle. But it may also be a much needed connection to reality (capturing the real behavior of live investors). Viewing equities as a stand-alone product (information derivative) does not isolate them from the wider economic picture. Equity investments survive in competition with other strategies. The popularity of equities as an investment strategy demands an explanation. In terms of data this means that the information derivatives approach needs to explain not just the realized equities performance but also the investor-expected equity premia. The data suggest the long-term equity investments have been very good at delivering on the theoretical expectations.<ref name="Soklakov2020S" /> This explains the viability of the strategy in addition to its performance (i.e. in addition to the equity premium).<ref name="Soklakov2020S" /><ref name="Soklakov2020" />