Thursday, October 8, 2015

Utility maximization and entropy maximization


Here's an outline of the second draft paper:
Title: Utility maximization and entropy maximization
Abstract: Utility maximization and entropy maximization represent two different paradigms of finding the equilibrium among N-good and T-period markets. Under certain conditions, they result in the same equilibrium. Maximum entropy and information equilibrium are used to construct some fundamental microeconomic relationships such as the asset pricing equation and the Euler equation, as well as the minimal macroeconomic model MINIMAC. We discuss the use of entropy maximization as a method to select a unique Arrow-Debreu general equilibrium, and produce a model whereby an emergent representative agent exhibits transitive preferences, monotonicity of utility and consumption smoothing despite individual agents having fluctuating consumption and unstable and non-transitive preferences.

0. Introduction: Gary Becker's irrational rational agents
http://informationtransfereconomics.blogspot.com/2015/10/gary-beckers-emergent-rational-agents.html

1. Utility and information equilibrium
http://informationtransfereconomics.blogspot.com/2015/03/utility-in-information-equilibrium-model.html

2. Asset pricing equation
http://informationtransfereconomics.blogspot.com/2015/05/the-basic-asset-pricing-equation-as.html

3. Euler equation
http://informationtransfereconomics.blogspot.com/2015/06/the-euler-equation-as-maximum-entropy.html

4. Emergent representative agent
http://informationtransfereconomics.blogspot.com/2015/09/the-emergent-representative-agent-1.html

5. MINIMAC, the natural rate of unemployment and the plucking model
http://informationtransfereconomics.blogspot.com/2015/06/minimac-as-information-equilibrium-model.html
http://informationtransfereconomics.blogspot.com/2015/06/maximum-entropy-and-natural-rate-of.html
http://informationtransfereconomics.blogspot.com/2015/09/a-random-walk-inside-simplex.html

2 comments:

  1. Repeating a my comment from a recent post, but it is even more relevant here:

    I don't know if you plan to cite Eric Smith and Duncan Foley in this paper, but you didn't in the ArXiv paper. Foley was chair of economics at the New School and Smith and Foley have published a fair amount of work using thermodynamics to derive general equilibrium economics. Smith and Foley's approach seems largely congruent with yours.

    You can look up "thermodynamics Duncan Foley" in Google Scholar. As a shortcut one physicist friendly PDF is at (http://www.santafe.edu/~desmith/PDF_pubs/DYNCON2011.pdf).

    You might find the folks at the Santa Fe Institute more receptive than most economists, by the way.

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    1. I saw your comment about Foley elsewhere, but for completeness (and people only seeing this post), here was my response:

      Thanks for the link -- I have read Foley's work (I reference it here for example).

      Originally, I wanted to see how far I could get while avoiding introducing "utility" (which Foley bases his work on) ... but since that time I've become a bit more amenable to utility as an "effective field", so maybe it's time for a revisit.

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