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Econophysics and individual choice

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  • Bordley, Robert F.

Abstract

The subjectivist theory of probability specifies certain axioms of rationality which together lead to both a theory of probability and a theory of preference. The theory of probability is used throughout the sciences while the theory of preferences is used in economics. Results in quantum physics challenge the adequacy of the subjectivist theory of probability. As we show, answering this challenge requires modifying an Archimedean axiom in the subjectivist theory. But changing this axiom modifies the subjectivist theory of preference and therefore has implications for economics. As this paper notes, these implications are consistent with current empirical findings in psychology and economics. As we show, these results also have implications for pricing in securities markets.

Suggested Citation

  • Bordley, Robert F., 2005. "Econophysics and individual choice," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 354(C), pages 479-495.
    • Handle: RePEc:eee:phsmap:v:354:y:2005:i:c:p:479-495
    DOI: 10.1016/j.physa.2005.03.016
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    Cited by:

    1. Paras M. Agrawal & Ramesh Sharda, 2013. "OR Forum---Quantum Mechanics and Human Decision Making," Operations Research, INFORMS, vol. 61(1), pages 1-16, February.

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