Meet Dr. Nudge, created at the Blockchaingers Hackathon 2018

Nudging autonomous investment decision making for smart contract powered asset management

R&D Labs
R&D Labs
Apr 13, 2018 · 4 min read
Dr. Nudge — Created at the Blockchaingers Hackathon 2018

Just like last year, an Ortec Finance Tech Labs team participated at the Blockchaingers Hackathon 2018. Again a very well-organized mind blowing event where 700 pioneers across 63 teams competed with each other within 7 tracks of global challenges. In our track, the future of pensions, nine teams were present. A nice mix between cooperate, student and start-up teams.

The Tech Labs team

There are many reasons to build pension administrations and their execution on the blockchain. A blockchain based pension is tamper proof by definition and immune for corruption and mismanagement. Features which are lacking in areas where there is no blind faith in institutions. For this hackaton we focussed on creating the missing puzzle piece in the blockchain pension domain: Since the investment risk for such pension contracts typically shift to individuals, these people need help in making smart investment decisions.

Nudging

“A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.”

Thaler & Sunstein 2008, p. 6

The problem: Inactivity

The solution: Dr. Nudge

With Dr. Nudge we want to unlock the benefits of Dynamic Asset Allocation Strategies (DAAS) for non-expert users. By providing Dr. Nudge with some personal data alongside a financial goal (e.g. a target wealth or income), the application will optimize (using Ortec Finance Economic Scenario’s) a DAAS which acts on both the time left and the current amount of wealth. In contrast with regular life-cycle products Dr. Nudge will provide the user with a tailored solution.

One of the great benefits for this a solution being on the blockchain is that we can implement Dr. Nudge’s results directly into a smart contract, which can interface with digital asset management platforms (e.g. Melonport). The contract is able to receive deposits and reallocate them according to the defined strategy. The smart contract will consider a new near optimal allocation for every rebalance moment which can be set by the user (e.g. daily, monthly or yearly). Hence, with Dr. Nudge one only sets their preferences and goals once, and the execution of a near optimal investment strategy is ensured for the product lifetime. Providing a care free solution which significantly increases the probability of reaching your goal.

For example if one wants to invest €10k now (2018) during a period of 40 years (until 2058). His/her goal can be to achieve €60k for additional pension. The figure on the left shows how the target wealth distribution of the investment in 2058. Here we observe that the blue graph (Dr. Nudge’s advice) shows a significant higher probability of reaching €60K than the benchmark strategy (orange). As a trade-off, the blue strategy has less upside potential (>€125k) than the orange strategy.

Our method is not only suitable for individual pension savings, but for any other financial goal.

The architecture

A technical overview of the solution

Conclusion

Mike Markus & Joris Cramwinckel

R&D Labs

Ortec Finance's R&D Labs department is where we work and…

R&D Labs

Ortec Finance's R&D Labs department is where we work and experiment with the latest techniques in order to research its applicability on new and existing products in the field of Finance.

R&D Labs

Written by

R&D Labs

We work and experiment with both new modelling approaches and IT techniques and concepts in order to research their applicability to investment decision making

R&D Labs

Ortec Finance's R&D Labs department is where we work and experiment with the latest techniques in order to research its applicability on new and existing products in the field of Finance.

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store