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Quantum propensity in economics

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  • David Orrell
  • Monireh Houshmand

Abstract

This paper describes an approach to economics that is inspired by quantum computing, and is motivated by the need to develop a consistent quantum mathematical framework for economics. The traditional neoclassical approach assumes that rational utility-optimisers drive market prices to a stable equilibrium, subject to external perturbations. While this approach has been highly influential, it has come under increasing criticism following the financial crisis of 2007/8. The quantum approach, in contrast, is inherently probabilistic and dynamic. Decision-makers are described, not by a utility function, but by a propensity function which specifies the probability of transacting. We show how a number of cognitive phenomena such as preference reversal and the disjunction effect can be modelled by using a simple quantum circuit to generate an appropriate propensity function. Conversely, a general propensity function can be quantized to incorporate effects such as interference and entanglement that characterise human decision-making. Applications to some common problems in economics and finance are discussed.

Suggested Citation

  • David Orrell & Monireh Houshmand, 2021. "Quantum propensity in economics," Papers 2103.10938, arXiv.org.
    • Handle: RePEc:arx:papers:2103.10938
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    References listed on IDEAS

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    3. Kondratenko, Anatoly V., 2015. "Probabilistic Economic Theory," MPRA Paper 81130, University Library of Munich, Germany.
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