Time-inconsistent mean field and n-agent games under relative performance criteria

Abstract

In this paper we study a time-inconsistent portfolio optimization problem for competitive agents with CARA utilities and non-exponential discounting. The utility of each agent depends on her own wealth and consumption as well as the relative wealth and consumption to her competitors. Due to the presence of a non-exponential discount factor, each agent's optimal strategy becomes time-inconsistent. In order to resolve time-inconsistency, each agent makes a decision in a sophisticated way, choosing open-loop equilibrium strategy in response to the strategies of all the other agents. We construct explicit solutions for the $n$-agent games and the corresponding mean field games (MFGs) where the limit of former yields the latter. This solution is unique in a special class of equilibria.