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Time and symmetry in models of economic markets

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  • Lee Smolin

Abstract

These notes discuss several topics in neoclassical economics and alternatives, with an aim of reviewing fundamental issues in modeling economic markets. I start with a brief, non-rigorous summary of the basic Arrow-Debreu model of general equilibrium, as well as its extensions to include time and contingency. I then argue that symmetries due to similarly endowed individuals and similar products are generically broken by the constraints of scarcity, leading to the existence of multiple equilibria. This is followed by an evaluation of the strengths and weaknesses of the model generally. Several of the weaknesses are concerned with the treatments of time and contingency. To address these we discuss a class of agent based models. Another set of issues has to do with the fundamental meaning of prices and the related question of what the observables of a non-equilibrium, dynamic model of an economic market should be. We argue that these issues are addressed by formulating economics in the language of a gauge theory, as proposed originally by Malaney and Weinstein. We review some of their work and provide a sketch of how gauge invariance can be incorporated into the formulation of agent based models.

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  • Lee Smolin, 2009. "Time and symmetry in models of economic markets," Papers 0902.4274, arXiv.org.
    • Handle: RePEc:arx:papers:0902.4274
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    References listed on IDEAS

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    1. J. Doyne Farmer & John Geanakoplos, 2008. "The Virtues and Vices of Equilibrium and the Future of Financial Economics," Levine's Working Paper Archive 122247000000002067, David K. Levine.
    2. Sonnenschein, Hugo, 1972. "Market Excess Demand Functions," Econometrica, Econometric Society, vol. 40(3), pages 549-563, May.
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    Cited by:

    1. Martin Gremm, 2016. "Global Gauge Symmetries, Risk-Free Portfolios, and the Risk-Free Rate," Papers 1605.03551, arXiv.org.
    2. Leiashvily, Paata, 2018. "The frame of reference for new economic thinking," MPRA Paper 84563, University Library of Munich, Germany.
    3. Jason Smith, 2015. "Information equilibrium as an economic principle," Papers 1510.02435, arXiv.org.
    4. Leiashvily, Paata, 2017. "The Relativity Theory of General Economic Equilibrium," MPRA Paper 83291, University Library of Munich, Germany.

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