A subjective supply–demand model: the maximum Boltzmann/Shannon entropy solution

DOI10.1088/1742-5468/2009/03/P03035zbMATH Open1459.91114arXiv0811.2084OpenAlexW3100589182WikidataQ62582458 ScholiaQ62582458MaRDI QIDQ3301040FDOQ3301040

Authors: Edward W. Piotrowski, Jan Sładkowski 

Publication date: 11 August 2020

Published in: Journal of Statistical Mechanics: Theory and Experiment (Search for Journal in Brave)

Abstract: We investigate activities that have different periods of duration. We define the profit intensity as a measure of this economic category. The profit intensity in a repeated trading has a unique property of attaining its maximum at a fixed point regardless of the shape of demand curves for a wide class of probability distributions of random reverse transaction (ie closing of the position). This type of market games is often considered in the research aiming at finding an algorithm that maximizes profit of a trader who negotiates prices with the Rest of the World (a collective opponent) that posses a definite and objective supply profile. Such idealization neglects the sometimes important influence of an individual trader on the demand/supply profile of the Rest of the World and in extreme cases questions the very idea of demand/supply profile. Therefore we put forward a trading model in which the demand/supply profile of the Rest of the World induces the (rational) trader to (subjectively) presume that he/she lacks (almost) all knowledge concerning the market but his/hers average frequency of trade. This point of view introduces maximum entropy principles into the model and broadens the range of economics phenomena that can be perceived as a sort of thermodynamical system. As a consequence, the profit intensity has a fixed point:the profit in tensity reaches its maximum when the probability of transaction is given by the Golden Ratio rule $fracsqrt5-12$.

Full work available at URL: https://arxiv.org/abs/0811.2084

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Mathematics Subject Classification ID

Consumer behavior, demand theory (91B42) Applications of statistical and quantum mechanics to economics (econophysics) (91B80) Time-dependent statistical mechanics (dynamic and nonequilibrium) (82C99)

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Cited In (5)

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• Parameter estimation by fixed point of function of information processing intensity
• Schrödinger type equation for subjective identification of supply and demand
• When \textit{I cut, you choose} method implies intransitivity

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