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A probabilistic framework for hysteresis

Author

Listed:
  • Grinfeld, M.
  • Piscitelli, L.
  • Cross, R.

Abstract

We introduce a probabilistic framework for hysteresis, a ubiquitous phenomenon in economic situations involving sunk costs. The framework is applied to a simple model of a firm's market entry/exit decisions. We study the influence of sunk cost size, width of the hysteretic loop, and of availability of local information on wealth creation in a sector of the economy.

Suggested Citation

  • Grinfeld, M. & Piscitelli, L. & Cross, R., 2000. "A probabilistic framework for hysteresis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 577-586.
    • Handle: RePEc:eee:phsmap:v:287:y:2000:i:3:p:577-586
    DOI: 10.1016/S0378-4371(00)00394-0
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    References listed on IDEAS

    as
    1. Rod Cross & Julia Darby & Jonathan Ireland & Laura Piscitelli, 1999. "Hysteresis and Unemployment: a Preliminary Investigation," Computing in Economics and Finance 1999 721, Society for Computational Economics.
    2. Laura Piscitelli & Michael Grinfeld & Harbir Lamba & Rod Cross, 1999. "On entry and exit in response to aggregate shocks," Applied Economics Letters, Taylor & Francis Journals, vol. 6(9), pages 569-572.
    3. Piscitelli, Laura & Cross, Rod & Grinfeld, Michael & Lamba, Harbir, 2000. "A Test for Strong Hysteresis," Computational Economics, Springer;Society for Computational Economics, vol. 15(1-2), pages 59-78, April.
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    8. W. Brian Arthur, 1994. "Inductive Reasoning, Bounded Rationality and the Bar Problem," Working Papers 94-03-014, Santa Fe Institute.
    9. Cross, Rod, 1993. "On the Foundations of Hysteresis in Economic Systems," Economics and Philosophy, Cambridge University Press, vol. 9(1), pages 53-74, April.
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