Econophysics

An Economy of Physics & a Physics of the Economy?

by Frank Witte

Slides of a Talk.

These are the slides of a presentation I gave at Grinnell College as International Visiting Fellow on April 12, 2012.... more These are the slides of a presentation I gave at Grinnell College as International Visiting Fellow on April 12, 2012.

In this talk I attempt to illustrate that there is merit in studying economic questions from the perspective of physics-inspired inspired methods, for both disciplines. I argue hat questions related to the "geometry" of an economy and the measurement problem of its microscopic structure are surprisingly similar in some ways.

Statistical Market Equilibrium Revisited

by Frank Witte

This is a preliminary version of a working paper that I hope to have completed by the end of March. YES a spelling check is still needed and YES a check on many of the equations is also still needed.

WORK IN PROGRESS:

I analyze Foley's Statistical Market Equilibrium theory in some detail and a number of... more WORK IN PROGRESS:

I analyze Foley's Statistical Market Equilibrium theory in some detail and a number of problems in the interpretation are highlighted. Most significant of these are the initial-state dependence of the equilibrium state, the fact that equilibrium allocations fluctuate and thus market-clearing occurs on average only and that a manifest connection to Walrassian equilibria is obscured.

A "kinetic" derivation of the statistical market ensemble allows for a more dynamical understanding of how statistical equilibrium can arise as a result of "collission-like, market-value and/or utillity preserving interactions between agents. The outcome of these interactions, that drive equilibration, can be formulated in terms of individualised marginal values of commodities and the individual risk-adversity of the agents.

The initial-state dependence can be shown to be largely removable upon this re-interpretation and minor modification of the formalism. The new formalism can accomodate exact market-clearing by a Legendre transformation to a different ensemble which endogenizes the prices and leads to endogeneous price fluctuations. It is also illustrated that a statistical market where the weight depends on the constrained-utillity of the total commodity bundle, rather than the total value of the bundle, has the Walrassian equilibrium as its expectation values in the limit of vanishing negative temperatures and the Foley model as its positive high-temperature limit. Studying fluctuations reveals clearly that statistical market equilibrium is reached by agents that are in interaction with a commodity-bath of secondary agents that do not explicitly appear in Foley's theory. The role of the initial iso-utillity manifold on which the agents are positioned is clarified.

Finally an attempt is made to study the "thermodynamics" of statistical equilibrium markets. It is shown how in this context the "economic temperature" has a natural interpretation as the average market-value per agent. An economic entropy can be defined which allows the definition of "isentropic" quasi-static market processes that are shown to generate supply and demand curves for the different types of agents. An equation of state is derived for a simple example of a market and used to show how simple market processes, such as the effects of price-changes and total commodity-bundle changes, can be analysed. As a last issue it is shown how, in principle, such models can also accomodate the statistical mechanics of agents "aggregating" into larger agents of a different type.

Predatory trading and risk minimisation: how to (b)eat the competition

by Anita Mehta

APPLICATION OF THE “TRIANGULAR ECO-KINEMATICS THEORY” (TEKT) (PART I) - THE PARADIGM OF ECOLOGY, PUBLIC HEALTH AND ECONOMY AS A SYNERGISTIC EFFECT UPON HUMAN RIGHTS

by Adrian Toader-Williams

Presented at the International Conference "Human Ecology: Health, Culture and Quality of Life, Oct. 26-27, 2011, Moscow, Russian Federation and Published in the "Herald of the International Academy of Science, Russian Section", 2011, Vol 1, ISSN 2221-7479 Full article [22 pages] in English with a Russian abstract and English abstract. Free download at http://www.heraldrsias.org/online/2011/1/203/
Upcoming updates on TEKT are on the way. Introductory presentation made during conference excerpts at http://youtu.be/kZkGKkbnGKE Comments and collaboration proposals are welcome. Thank you!

The laws governing natural economic flow are recommended to be used as model for a sustainable anthropogenic economy.... more The laws governing natural economic flow are recommended to be used as model for a sustainable anthropogenic economy. Life can't be monopolized. Biodiversity has a paramount importance to sustainable development. This article is intended to be the first in a series of applicative works based on the Triangular Eco-Kinematics Theory «TEKT» proposed here as foundation for global cooperation mechanisms. It is an urgent call for global anthropogenic economic reforms. Planet Earth can sustain a maximum population load if it's properly managed. The Universal Declaration of Human Rights needs to be revised. A Life Equivalent Etalon [LEE] as currency reference is proposed. Key words: natural rights, Life Equivalent Etalon, LEE, gold, energy, protein, organization equilibrium theory, monetary system, entropy, antientropy, negentropy, syntropy, UNESCO, intangible commodities, economics, religion, protein, amino acids, seed germination, carbon dioxide, oxigen, dinitrogen, nitrogen, air, global warming, occupy wall street, occupy movement, evolution, macroeconomics.
Introduction.
Ecological issues should not be separated from economic issues or from public health concerns as they correlate. The global crises have their beginnings back in the history of mankind. Lately they are acutely identified and discussed as our natural resources are depleting visibly. Furthermore, the strong polarization of wealth, abusive exploitation of natural resources and excessive material accumulation do not just hinder the free economic flow, but are also unethical. It conducts to social segregation and conflicts; the expanding “occupy movement” is just one of the latest examples. With this paper, I am also calling for an urgent and closer look at Human Rights principles. Human Rights need to be a section of a future Universal Declaration of Natural Rights.
This paper (as part 1) is an attempt to address several interconnected issues in a fashion such as an overture to an upcoming series of work (work is in progress) with the belief that readers have a fairly strong natural inducement to co-operate [20] with the author in order to build and consolidate the proposed model, the presently included applications and the upcoming ones as well.
Fighting Nature is a historical human endeavor for which we just recently started to see the beginning of its outcome. Public health, ecological systems and global economics, being intimately interconnected, undergo a cycle of crises that I take the freedom to call “The Bermuda Triangle of Human Endeavors”. Planet Earth offers us as Humanity the means to support our very material existence. Health and ecology together are the primary life supporting elements that form the structures of a sustainable social and economic development.
Deprivation of proper living conditions represents an acute denial of Human Rights. No one has the right to deprive others from the inherited Natural Rights, the rights to exist. The economic principles need to be brought up to date and restructured such as to observe the non-monetary values going beyond Human Rights. For the economic system to be sustainable it needs to use a currency that has a sustainable etalon as reference. Life Equivalent Etalons (LEE) can assure economic and international stability as they are fixed and indispensable.
Each one of us is responsible for the global economy as it is an expression of human endeavor and its dynamics, more so in the context of globalization. I’ll tailor my work in a way to make it accessible to most people. It does not matter how good are whatever ideas one may have if they are not well understood by the intended audience, in this particular case, Humanity at large.The M.A.Sholokhov Moscow State University of Humanities is a great place to present this paper addressing ecological issues; such subjects are only about Humanity and concerns Humanity at large. What can be more human than human activity and its overall outcome?
Primary conclusions – Life’s properties and limitations
1) Acute and severely disastrous possible outcomes are due, a total collapse of the system is expected if one living entity is lowering its entropy (increasing anti-entropy) and comes too close to exhausting its own life support, regardless of the energy that may be available. Outgrowing life’s support capacity induces the destruction of the entire system, its entire collapse to decay possibly into lifeless while keeping the energy tightly locked into a stinky slime form of existence.
2) If our planet was to be populated only by forests and plants, cyanobacteria and green algae, Earth could have exhausted its life support and its destiny would have been limited to a continuous energy and structural accumulation up to the point when a total decay would have follow, perhaps a slimy world. Strange as it may appear my statement, we’ve seen in the above experimental example that as long as there are living entities consuming oxygen, ready synthesized sugars and proteins, having CO2 as waste on which the plants can feed on, the cycle of life can continue as long as the relative organizational equilibrium is being kept to a sustainable level or why not a sustainable rapport as represented by TEKT.
3) Based on the above, the biological classifications are forming two major groups:
a) The self-sustaining, food independent living entities (i.e. cyanobacteria, plantae),
b) The by-sustaining, food dependent living entities (i.e. animalia, etc.)
4) Thermodynamically, utilization of energy is not a mere “emerging property” of life, it is Life itself. Utilization of energy by living forms of existence is a self organizing and a conducting mechanism that “knows” to use energy efficiently. It knows when and how to accumulate the dissipated free energy, to “pump it” in the re-assembled structures. It concentrates energy reserves; it creates protective resistant ergonomic structures. The Life forms of material existence have as main property (as opposed to emerging property) the thermo-dynamical ability to act as heat energy pumps; Life forms of material existence are structures of concentrated energy ready to be used. A small seed has the ability to act as a heat energy pump concentrating dissipated free energy into a chemical structure with energy ready to use (i.e. burning wood producing heat).
5) The minerals and vitamins play a key roll in the kinematics of the Life phenomena, the energy, the dynamics of it, but the mother of all dynamics is the mystery of Life, the low entropy or high anti-entropy of information encoded in the DNA folds confers the ability to use and further concentrate more energy into a structural body, into the high anti-entropy of the newly grown living entity, the plants, the trees with their fruits and byproducts holding enormous incorporated energy as well. The high anti-entropy of information has the ability to concentrate low negentropy (high entropy) into high anti-entropy, ready to use concentrated forms of energy, a real gift of Life.
The ability to self-acquiring, holding, using and transmitting information we can also identify it as being a main property of Life.
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See the full article [ free PDF DOWNLOAD ] from
http://www.heraldrsias.org/online/2011/1/203/
Comments and contributions are welcome.

Unemployment and inflation in Western Europe: solution by the boundary element method

by Oleg Kitov

Hilbert space models commodity exchanges

by paul cockshott

Equivalence and conservation laws

by paul cockshott

Brief paper (4 pages ) on the application of the notion of conservation laws to the economy. Brief paper (4 pages ) on the application of the notion of conservation laws to the economy.

How the rich get richer

by Anita Mehta

Competitive cluster growth on networks: complex dynamics and survival strategies

by Anita Mehta

Revisiting the thermal / superthermal distribution of incomes: a critical response

by Markus Schneider

(revise & resubmit)

This paper offers a two-pronged critique of the empirical investigation of the income distribution performed by... more This paper offers a two-pronged critique of the empirical investigation of the income distribution performed by physicists over the past decade. Their finding rely on the graphical analysis of the observed distribution of normalized incomes. Two central observations lead to the conclusion that the majority of incomes are exponentially distributed, but neither each individual piece of evidence nor their concurrent observation robustly proves that the thermal / superthermal mixture fits the observed distribution of incomes. A formal analysis using popular measures of fit shows that while an exponential distribution with a power-law tail provides a better fit of the IRS income data than the log-normal distribution (often assumed by economists), the thermal / superthermal mixture’s fit can be improved upon further by adding a log-normal component. The economic implications of the thermal / superthermal distribution of incomes and the expanded mixture are explored in the paper.

Hidden temporal order unveiled in stock market volatility variance

by Dror Kenett

Y. Shapira, D. Y. Kenett, Ohad Raviv, and E. Ben-Jacob

AIP Advances 1, 022127 (2011); doi:10.1063/1.3598412

When analyzed by standard statistical methods, the time series of the daily return of financial indices appear to... more When analyzed by standard statistical methods, the time series of the daily return of financial indices appear to behave as Markov random series with no apparent temporal order or memory. This empirical result seems to be counter intuitive since investor are influenced by both short and long term past market behaviors. Consequently much effort has been devoted to unveil hidden temporal order in the market dynamics. Here we show that temporal order is hidden in the series of the variance of the stocks volatility. First we show that the correlation between the variances of the daily returns and means of segments of these time series is very large and thus cannot be the output of random series, unless it has some temporal order in it. Next we show that while the temporal order does not show in the series of the daily return, rather in the variation of the corresponding volatility series. More specifically, we found that the behavior of the shuffled time series is equivalent to that of a random time series, while that of the original time series have large deviations from the expected random behavior, which is the result of temporal structure. We found the same generic behavior in 10 different stock markets from 7 different countries. We also present analysis of specially constructed sequences in order to better understand the origin of the observed temporal order in the market sequences. Each sequence was constructed from segments with equal number of elements taken from algebraic distributions of three different slopes.

An Exploratory Entropy Analysis of the Income Distribution - Earned Income in the U.S. from 1996 to 2007

by Markus Schneider

(presented at EEA 2010; under review)

In this paper, an intuitive application of informational entropy is used to assess how well a distribu- tional model... more In this paper, an intuitive application of informational entropy is used to assess how well a distribu- tional model uses the information in the data. The approach was modeled on E. T. Jayness treatment of Wolf's dice data, but applied to the distribution of wage and salary income in the U.S. based on CPS data. The motivation of the study was to answer a graphical analysis by physicists that resulted in the claim that earned income was exponentially distributed. The analysis shows that the distribution of earned income of neither all respondents to the ASEC nor of respondents who are likely to file individual tax returns (akin to the subpopulation used by the physicists) is exponential. However, the study finds that a mixture of an exponential and log-normal distribution may fit the earned income data. The economic implications of these distributional models are explored in the paper.

The nature of price returns during periods of high market activity

by Khalil Dayri

published in In "Econophysics of Order-driven Markets", Springer Verlag 2010

By studying all the trades and best bids/asks of ultra high frequency snapshots recorded from the order books of a... more By studying all the trades and best bids/asks of ultra high frequency snapshots recorded from the order books of a basket of 10 futures assets, we bring qualitative empirical evidence that the impact of a single 715 trade depends on the intertrade time lags. We find that when the trading rate becomes faster, the return variance per trade or the impact, as measured by the price variation in the direction of the trade, strongly increases. We provide evidence that these properties persist at coarser time scales. We also show that the spread value is an increasing function of the activity. This suggests that order books are more likely empty when the trading rate is high.

Stationarity Tests for Financial Time Series

by Ricardo Gimeno

Evidence for the Gompertz Curve in the Income Distribution of Brazil 1978-2005

by Marcelo B. Ribeiro

Co-authored with N.J. Moura Jr.

Published in The Euopean Physical Journal B 67 (2009) 101-120

This work presents an empirical study of the evolution of the personal income distribution in Brazil. Yearly samples... more This work presents an empirical study of the evolution of the personal income distribution in Brazil. Yearly samples available from 1978 to 2005 were studied and evidence was found that the complementary cumulative distribution of personal income for 99% of the economically less favorable population is well represented by a Gompertz curve of the form $G(x)=\exp [\exp (A-Bx)]$, where $x$ is the normalized individual income. The complementary cumulative distribution of the remaining 1% richest part of the population is well represented by a Pareto power law distribution $P(x)= \beta x^{-\alpha}$. This result means that similarly to other countries, Brazil's income distribution is characterized by a well defined two class system. The parameters $A$, $B$, $\alpha$, $\beta$ were determined by a mixture of boundary conditions, normalization and fitting methods for every year in the time span of this study. Since the Gompertz curve is characteristic of growth models, its presence here suggests that these patterns in income distribution could be a consequence of the growth dynamics of the underlying economic system. In addition, we found out that the percentage share of both the Gompertzian and Paretian components relative to the total income shows an approximate cycling pattern with periods of about 4 years and whose maximum and minimum peaks in each component alternate at about every 2 years. This finding suggests that the growth dynamics of Brazil's economic system might possibly follow a Goodwin-type class model dynamics based on the application of the Lotka-Volterra equation to economic growth and cycle.

The Gompertz-Pareto Income Distribution

by Marcelo B. Ribeiro

Co-authored with F. Chami Figueira & N.J. Moura Jr.

Published in Physica A 390 (2011) 689-698

This work analyzes the Gompertz-Pareto distribution (GPD) of personal income, formed by the combination of the... more This work analyzes the Gompertz-Pareto distribution (GPD) of personal income, formed by the combination of the Gompertz curve, representing the overwhelming majority of the economically less favorable part of the population of a country, and the Pareto power law, which describes its tiny richest part. Equations for the Lorenz curve, Gini coefficient and the percentage share of the Gompertzian part relative to the total income are all written in this distribution. We show that only three parameters, determined by linear data fitting, are required for its complete characterization. Consistency checks are carried out using income data of Brazil from 1981 to 2007 and they lead to the conclusion that the GPD is consistent and provides a coherent and simple analytical tool to describe personal income distribution data.

On the Upper Tail of Italian Firms' Size Distribution

by Pasquale Cirillo

An Analysis of the Size Distribution of Italian Firms by Age

by Pasquale Cirillo