Discussion paper
DP18339 Growth and Likelihood
We examine a stochastic growth process that can alternatively be interpreted as a model of economic growth, financial portfolio management, statistical inference, or biological population growth. For the economic interpretation, we find that the growth-maximizing policy satisfies a meritocracy principle: it minimizes the discrepancy between the resource shares allocated to the agents and the agents' ``merits.'' For the statistical interpretation, the setting is equivalent to a model of predictive coding, in which a misspecified system maximizes the fit of data. A consistency principle analogous to the meritocracy principle requires the optimal fit to minimize a degree of Bayes inconsistency.
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