Optimal finance means optimal allocation of money across your life, regardless of when you earn it.
That’s part of it, but there’s also coordination between people (e.g., investors coming together to finance a capital-intensive business that no single person can afford to fund) and managing risk and incentives (e.g., a sole proprietorship has better incentives but worse risk characteristics compared to a company with many shareholders, a company issuing both stocks and bonds so investors can make their own risk/reward tradeoff, etc.).
I think maybe something like “finance is about how a group of people can cooperate to pursue EU maximization over time, given some initial endowment of assets and liabilities” would capture most of it?
Well yes, but no, the point is that these other people are merely means, but optimally distributing your assets over time is a means that screens off the other people, in a sense. In the end, assuming that people are really just optimizing for their own value, they might trade for that but in the end their goal is their own allocation.
That’s part of it, but there’s also coordination between people (e.g., investors coming together to finance a capital-intensive business that no single person can afford to fund) and managing risk and incentives (e.g., a sole proprietorship has better incentives but worse risk characteristics compared to a company with many shareholders, a company issuing both stocks and bonds so investors can make their own risk/reward tradeoff, etc.).
I think maybe something like “finance is about how a group of people can cooperate to pursue EU maximization over time, given some initial endowment of assets and liabilities” would capture most of it?
Well yes, but no, the point is that these other people are merely means, but optimally distributing your assets over time is a means that screens off the other people, in a sense. In the end, assuming that people are really just optimizing for their own value, they might trade for that but in the end their goal is their own allocation.
Ok, I think that makes sense.