Quantum economics

Quantum economics is an emerging research field which applies methods and ideas from quantum physics to the field of economics. It is motivated by the belief that economic processes such as financial transactions have much in common with quantum processes. It draws on techniques from the related areas of quantum finance and quantum cognition, and can be viewed as a sub-field of what Alexander Wendt and others have called "quantum social science".[1]

History

An early proponent of this approach was the Pakistani mathematician Asghar Qadir. In his 1978 paper Quantum Economics, he argued that the formalism of quantum mechanics is the best mathematical framework for modeling situations where "consumer behavior depends on infinitely many factors and that the consumer is not aware of any preference until the matter is brought up."[2] He proposed that, like particles in quantum mechanics, "the individual as an entity ... can be thought of as a point in a Hilbert space."

Qadir's paper received little attention. However, during the 1990s, workers in the field of quantum cognition indeed showed that many aspects of human decision-making, including those involved in economic decisions, seemed to follow a kind of quantum logic.[3] At the same time, researchers such as economist Martin Shubik, physicist Martin Schaden and social scientist Emmanuel Haven were beginning to use the quantum formalism to model the uncertainty of stock markets.[4][5][6]

In his 2007 book Quantum Finance: Path Integrals and Hamiltonians for Options and Interest Rates, Belal E. Baaquie showed how methods from quantum physics could be applied to things like the pricing of financial options. However he wrote that the ‘’larger question of applying the formalism and insights of (quantum) physics to economics, and which forms a part of the larger subject of econophysics, is left for future research.’’[7]

In their 2013 book Quantum Social Science, Emmanuel Haven and Andrei Khrennikov extended Baaquie’s work in finance, and showed how quantum techniques could be used to model a number of issues in economics more broadly, such as arbitrage and the reflexivity theory of George Soros.[8]

In a 2016 paper[9] and book[10][11] (the latter co-authored with journalist Roman Chlupatý), the mathematician David Orrell proposed a quantum theory of money and value, which states that money has dualistic, quantum properties because of the way that it merges the exact concept of number with the fuzzy concept of value. His 2018 book Quantum Economics: The New Science of Money described a quantum economics which combined this view of money with the insights of quantum finance and quantum social science.[12][13]

Description

Just as quantum physics differs in fundamental ways from classical physics, quantum economics differs from neoclassical economics in a number of key respects.

Neoclassical economics is based on expected utility theory, which combines utility theory to model people’s preferences, and probability theory to model expectations under uncertainty. However the field of quantum cognition calls these assumptions into question, since people don’t necessarily have fixed preferences, or base their decisions on probability theory. Many of the findings of behavioral economics are inconsistent with classical logic, but agree with quantum decision theory of the sort assumed in quantum economics.[1]

In financial applications, neoclassical economics is associated with the efficient market theory. As Haven and Khrennikov show, this condition has come under increasing question since the financial crisis, but can easily be relaxed using a quantum formalism.[8]

Neoclassical economics assumes that people act independently while making economic decisions. Quantum economics notes that financial actors are part of an entangled system, as in quantum game theory.

Quantum economics also stresses the importance of financial transactions and in particular the role of money as an active force in the economy, for example in the way that it binds debtors and creditors.[10] Quantum economics can therefore be viewed as an alternative to neoclassical economics which begins from a different set of assumptions.

References

  1. 1 2 Wendt, Alexander (2015). Quantum Mind and Social Science: Unifying Physical and Social Ontology. Cambridge University Press. ISBN 978-1107082540.
  2. ↑ Qadir, Asghar (1978). "Quantum Economics". Pakistan Economic and Social Review. 16 (3/4): 117–126.
  3. ↑ Aerts, D.; Aerts, S. (1994). "Applications of quantum statistics in psychological studies of decision processes". Foundations of Science. 1: 85–97.
  4. ↑ Shubik, M. (1999). "Quantum economics, uncertainty and the optimal grid size". Economics Letters. 64 (3): 277–278.
  5. ↑ Schaden, Martin (2002). "Quantum Finance". Physica A: Statistical Mechanics and its Applications. Physica A. 316: 511–538.
  6. ↑ Haven, Emmanuel (2002). "A discussion on embedding the Black–Scholes option pricing model in a quantum physics setting". Physica A: Statistical Mechanics and its Applications. Physica A. 304: 507–524.
  7. ↑ Baaquie, Belal E. (2007). Quantum Finance: Path Integrals and Hamiltonians for Options and Interest Rates. Cambridge University Press. ISBN 978-0521714785.
  8. 1 2 Haven, Emmanuel E.; Khrennikov, Andrei (2013). Quantum Social Science. Cambridge University Press. ISBN 978-1107012820.
  9. ↑ Orrell, David (2016). "A Quantum Theory of Money and Value". Economic Thought. 5 (2): 19–28.
  10. 1 2 Orrell, David; Chlupatý, Roman (2016). The Evolution of Money. Columbia University Press. pp. 171–175. ISBN 978-0231173728.
  11. ↑ Teese, Colin (11 February 2017). "Money and quantum physics". News Weekly.
  12. ↑ Orrell, David (2018). Quantum Economics: The New Science of Money. Icon Books. ISBN 978-1785783999.
  13. ↑ Clegg, Brian (5 July 2018). "Quantum Economics - David Orrell". Retrieved 17 September 2018.
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