2021/03/13 by David Orrell, Orrell, David, Monireh Houshmand +1
Economics, Econometrics and Finance · Physics and Astronomy · #FOS: Economics and business #FOS: Physical sciences #General Finance (q-fin.GN) #Quantum Physics (quant-ph) #q-fin.GN #quant-ph
paper · pdf · doi:10.48550/arxiv.2103.10938
arxiv created 2021/03/13 · arxiv updated 2021/03/22
This paper describes an approach to economics that is inspired by quantum computing, and is motivated by the need to develop a consistent quantum mathematical framework for economics. The traditional neoclassical approach assumes that rational utility-optimisers drive market prices to a stable equilibrium, subject to external perturbations. While this approach has been highly influential, it has come under increasing criticism following the financial crisis of 2007/8. The quantum approach, in contrast, is inherently probabilistic and dynamic. Decision-makers are described, not by a utility function, but by a propensity function which specifies the probability of transacting. We show how a number of cognitive phenomena such as preference reversal and the disjunction effect can be modelled by using a simple quantum circuit to generate an appropriate propensity function. Conversely, a general propensity function can be quantized to incorporate effects such as interference and entanglement that characterise human decision-making. Applications to some common problems in economics and finance are discussed.