IDEAS home Printed from https://ideas.repec.org/a/spr/jeicoo/v14y2019i3d10.1007_s11403-019-00252-7.html
   My bibliography  Save this article

From constrained optimization to constrained dynamics: extending analogies between economics and mechanics

Author

Listed:
  • Erhard Glötzl

    (Johannes Kepler University Linz)

  • Florentin Glötzl

    (Vienna University of Economics and Business)

  • Oliver Richters

    (Carl von Ossietzky University of Oldenburg
    ZOE, Institute for future-fit economies)

Abstract

Economic equilibrium models have been inspired by analogies to stationary states in classical mechanics. To extend these mathematical analogies from constrained optimization to constrained dynamics, we formalize economic (constraint) forces and economic power in analogy to physical (constraint) forces and the reciprocal value of mass. Agents employ forces to change economic variables according to their desire and their power to assert their interest. These ex-ante forces are completed by constraint forces from unanticipated system constraints to yield the ex-post dynamics. The differential-algebraic equation framework seeks to overcome some restrictions inherent to the optimization approach and to provide an out-of-equilibrium foundation for general equilibrium models. We transform a static Edgeworth box exchange model into a dynamic model with procedural rationality (gradient climbing) and slow price adaptation, and discuss advantages, caveats, and possible extensions of the modeling framework.

Suggested Citation

  • Erhard Glötzl & Florentin Glötzl & Oliver Richters, 2019. "From constrained optimization to constrained dynamics: extending analogies between economics and mechanics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(3), pages 623-642, September.
    • Handle: RePEc:spr:jeicoo:v:14:y:2019:i:3:d:10.1007_s11403-019-00252-7
    DOI: 10.1007/s11403-019-00252-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11403-019-00252-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11403-019-00252-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bertrand Munier & Reinhard Selten & D. Bouyssou & P. P. Bourgine & R. Day & N. Harvey & D. Hilton & M. Machina & Ph. Parker & J. Sterman & E. Weber & B. Wernerfelt & R. Wensley, 1999. "Bounded rationality modeling," Post-Print hal-02361947, HAL.
    2. Mantel, Rolf R., 1974. "On the characterization of aggregate excess demand," Journal of Economic Theory, Elsevier, vol. 7(3), pages 348-353, March.
    3. Leigh Tesfatsion, 2017. "Elements of Dynamic Economic Modeling: Presentation and Analysis," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(2), pages 192-216, March.
    4. David Colander & Peter Howitt & Alan Kirman & Axel Leijonhufvud & Perry Mehrling, 2018. "Beyond DSGE Models: Toward an Empirically Based Macroeconomics," Chapters, in: How Economics Should Be Done, chapter 14, pages 212-216, Edward Elgar Publishing.
    5. Oliver Richters & Erhard Glötzl, 2020. "Modeling economic forces, power relations, and stock-flow consistency: a general constrained dynamics approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(2), pages 281-297, April.
    6. Eugenio Caverzasi & Antoine Godin, 2015. "Post-Keynesian stock-flow-consistent modelling: a survey," Cambridge Journal of Economics, Oxford University Press, vol. 39(1), pages 157-187.
    7. Nicholas Kaldor, 1955. "Alternative Theories of Distribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 23(2), pages 83-100.
    8. Giorgio Fagiolo & Andrea Roventini, 2012. "Macroeconomic Policy in DSGE and Agent-Based Models," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 67-116.
    9. Backhouse,Roger E. & Boianovsky,Mauro, 2014. "Transforming Modern Macroeconomics," Cambridge Books, Cambridge University Press, number 9781107435384.
    10. Siegwart Lindenberg, 2001. "Social Rationality as a Unified Model of Man (Including Bounded Rationality)," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(3), pages 239-251, September.
    11. Gerard Ballot & Antoine Mandel & Annick Vignes, 2015. "Agent-based modeling and economic theory: where do we stand?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 199-220, October.
    12. Dixit, Avinash K., 1990. "Optimization in Economic Theory," OUP Catalogue, Oxford University Press, edition 2, number 9780198772101, Decembrie.
    13. Redman, Deborah A, 1993. "Adam Smith and Isaac Newton," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(2), pages 210-230, May.
    14. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, Decembrie.
    15. F. Donzelli, 1997. "Pareto's Mechanical Dream," Departmental Working Papers 1997-07, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    16. Smith, Eric & Foley, Duncan K., 2008. "Classical thermodynamics and economic general equilibrium theory," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 7-65, January.
    17. R. M. Harstad & R. Selten, 2014. "Bounded-rationality models:tasks to become intellectually competitive," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 5.
    18. A. Leijonhufvud., 2006. "Episodes in a Century of Macroeconomics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 11.
    19. Bezemer, Dirk J., 2010. "Understanding financial crisis through accounting models," Accounting, Organizations and Society, Elsevier, vol. 35(7), pages 676-688, October.
    20. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
    21. Fernández-Villaverde, J. & Rubio-Ramírez, J.F. & Schorfheide, F., 2016. "Solution and Estimation Methods for DSGE Models," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 527-724, Elsevier.
    22. Glötzl, Erhard, 2015. "Why and How to overcome General Equilibrium Theory," MPRA Paper 66265, University Library of Munich, Germany.
    23. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
    24. George A. Akerlof, 2003. "Behavioral Macroeconomics and Macroeconomic Behavior," The American Economist, Sage Publications, vol. 47(1), pages 25-47, March.
    25. Stoker, Thomas M, 1993. "Empirical Approaches to the Problem of Aggregation Over Individuals," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1827-1874, December.
    26. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
    27. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
    28. Meyer, Laurence H., 1975. "The balance sheet identity, the government financing constraint, and the crowding-out effect," Journal of Monetary Economics, Elsevier, vol. 1(1), pages 65-78, January.
    29. Grattan-Guinness, Ivor, 2010. "How Influential Was Mechanics In The Development Of Neoclassical Economics? A Small Example Of A Large Question," Journal of the History of Economic Thought, Cambridge University Press, vol. 32(4), pages 531-581, December.
    30. Glötzl, Erhard, 2016. "Continuous time, continuous decision space prisoner’s dilemma: A bridge between game theory and economic GCD-models," MPRA Paper 72965, University Library of Munich, Germany.
    31. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
    32. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
    33. Rizvi, S Abu Turab, 1994. "The Microfoundations Project in General Equilibrium Theory," Cambridge Journal of Economics, Oxford University Press, vol. 18(4), pages 357-377, August.
    34. Smith, Adam, 2008. "An Inquiry into the Nature and Causes of the Wealth of Nations: A Selected Edition," OUP Catalogue, Oxford University Press, number 9780199535927 edited by Sutherland, Kathryn, Decembrie.
    35. Sonnenschein, Hugo, 1972. "Market Excess Demand Functions," Econometrica, Econometric Society, vol. 40(3), pages 549-563, May.
    36. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521865487.
    37. A. P. Kirman & K. J. Koch, 1986. "Market Excess Demand in Exchange Economies with Identical Preferences and Collinear Endowments," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 457-463.
    38. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521684200.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Glötzl, Erhard, 2022. "General Constrained Dynamic (GCD) models with intertemporal utility functions," MPRA Paper 112387, University Library of Munich, Germany.
    2. Richters, Oliver, 2021. "Modeling the out-of-equilibrium dynamics of bounded rationality and economic constraints," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 846-866.
    3. Asad Zaman, 2020. "New Directions in Macroeconomics," International Econometric Review (IER), Econometric Research Association, vol. 12(1), pages 1-23, April.
    4. Richters, Oliver, 2020. "Between bounded rationality and economic imperatives: essays on out-of-equilibrium dynamics," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 228534, October.
    5. Oliver Richters & Erhard Glötzl, 2020. "Modeling economic forces, power relations, and stock-flow consistency: a general constrained dynamics approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(2), pages 281-297, April.
    6. Glötzl, Erhard, 2022. "Macroeconomic General Constrained Dynamic models (GCD models)," MPRA Paper 112385, University Library of Munich, Germany.
    7. Glötzl, Erhard, 2022. "A simple General Constrained Dynamics (GCD) model for demand, supply and price shocks," MPRA Paper 112386, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richters, Oliver, 2021. "Modeling the out-of-equilibrium dynamics of bounded rationality and economic constraints," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 846-866.
    2. Richters, Oliver, 2020. "Between bounded rationality and economic imperatives: essays on out-of-equilibrium dynamics," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 228534, October.
    3. Giovanni Dosi & Andrea Roventini, 2019. "More is different ... and complex! the case for agent-based macroeconomics," Journal of Evolutionary Economics, Springer, vol. 29(1), pages 1-37, March.
    4. G. Fagiolo & A. Roventini, 2009. "On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 6.
    5. Troy Tassier, 2013. "Handbook of Research on Complexity, by J. Barkley Rosser, Jr. and Edward Elgar," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(1), pages 132-133.
    6. Antonio Doria, Francisco, 2011. "J.B. Rosser Jr. , Handbook of Research on Complexity, Edward Elgar, Cheltenham, UK--Northampton, MA, USA (2009) 436 + viii pp., index, ISBN 978 1 84542 089 5 (cased)," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 196-204, April.
    7. Giorgio Fagiolo & Andrea Roventini, 2017. "Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 20(1), pages 1-1.
    8. Barbara Dluhosch, 2011. "European Economics at a Crossroads, by J. Barkley Rosser, Jr., Richard P. F. Holt, and David Colander," Journal of Regional Science, Wiley Blackwell, vol. 51(3), pages 629-631, August.
    9. repec:hal:spmain:info:hdl:2441/dcditnq6282sbu1u151qe5p7f is not listed on IDEAS
    10. J. Barkley Rosser Jr & Richard P.F. Holt & David Colander, 2010. "European Economics at a Crossroads," Books, Edward Elgar Publishing, number 13585.
    11. Gallegati, Mauro & Kirman, Alan, 2019. "20 years of WEHIA: A journey in search of a safer road," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 5-14.
    12. Giovanni Dosi & Mauro Napoletano & Andrea Roventini & Joseph E. Stiglitz & Tania Treibich, 2020. "Rational Heuristics? Expectations And Behaviors In Evolving Economies With Heterogeneous Interacting Agents," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1487-1516, July.
    13. Vipin P. Veetil, 2016. "Out-of-Equilibrium Dynamics with Heterogeneous Capital Goods," New Mathematics and Natural Computation (NMNC), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 157-173, July.
    14. Giorgio Fagiolo & Andrea Roventini, 2016. "Macroeconomic Policy in DGSE and Agent-Based Models Redux," Working Papers hal-03459348, HAL.
    15. Glötzl, Erhard, 2022. "Macroeconomic General Constrained Dynamic models (GCD models)," MPRA Paper 112385, University Library of Munich, Germany.
    16. D. Wade Hands, 2012. "The Rise and Fall of Walrasian Microeconomics: The Keynesian Effect," Chapters, in: Microfoundations Reconsidered, chapter 3, Edward Elgar Publishing.
    17. Robert W. Dimand, 2014. "James Tobin and Modern Monetary Theory," Center for the History of Political Economy Working Paper Series 2014-5, Center for the History of Political Economy.
    18. repec:hal:spmain:info:hdl:2441/31dhti786q9k0q2i04klh6no54 is not listed on IDEAS
    19. Dilip Nachane, 2017. "Dynamic Stochastic General Equilibrium (DSGE) Modelling :Theory And Practice," Working Papers id:11699, eSocialSciences.
    20. Torsten Trimborn & Philipp Otte & Simon Cramer & Maximilian Beikirch & Emma Pabich & Martin Frank, 2020. "SABCEMM: A Simulator for Agent-Based Computational Economic Market Models," Computational Economics, Springer;Society for Computational Economics, vol. 55(2), pages 707-744, February.
    21. Kemp-Benedict, Eric, 2013. "Material needs and aggregate demand," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 44(C), pages 16-26.
    22. Frank Ackerman, 2001. "Still dead after all these years: interpreting the failure of general equilibrium theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 9(2), pages 119-139.

    More about this item

    Keywords

    Disequilibrium dynamics; Lagrangian mechanics; Behavioral microeconomics; Constrained dynamics; Edgeworth box; Tatonnement;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • B00 - Schools of Economic Thought and Methodology - - General - - - History of Economic Thought, Methodology, and Heterodox Approaches
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jeicoo:v:14:y:2019:i:3:d:10.1007_s11403-019-00252-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.