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The Google thought experiment: rationality, information and equilibrium in an exchange economy

Author

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  • Sylvain Barde

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

Following Becker (1962), an information-theoretical thought experiment is developed to investigate whether the equilibrium properties of an exchange economy depend on the rational behaviour of agents. Transactions are logged through a communication channel into an external observer's dataset, represented by Google. At some point this data connection fails and Google no longer receives the updates encoding the transactions. It is shown that Google can nevertheless make sharp predictions concerning the state of the economy. In particular, a stable long run distribution of endowments is expected, as well as a set of price-like variables. By construction this prediction does not rest on the rationality of agents, because the information-theoretical setting forces Google to treat the missed updates as random variables.

Suggested Citation

  • Sylvain Barde, 2009. "The Google thought experiment: rationality, information and equilibrium in an exchange economy," SciencePo Working papers Main hal-01069373, HAL.
    • Handle: RePEc:hal:spmain:hal-01069373
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-01069373
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    More about this item

    Keywords

    Information theoretical measure; maximum entropy principle; en- tropy concentration theorem;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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