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Back to the future: economic rationality and maximum entropy prediction

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  • Sylvain Barde

Abstract

An information-theoretic thought experiment is developed to clarify why the maximum entropy methodology is appropriate for predicting the equilibrium state of economic systems. As a first step, object allocation problems, modeled as knapsack problems, are shown to be equivalent to congestion games under weak assumptions. This proves the existence of finite improvement paths linking initial conditions and Nash equilibria. The existence of these improvement paths is precisely what enables the use of maximum entropy to make predictions concerning the equilibrium state. Finally an illustration of this predictive power is provided through an application to the Schelling model of segregation.

Suggested Citation

  • Sylvain Barde, 2012. "Back to the future: economic rationality and maximum entropy prediction," Studies in Economics 1202, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:1202
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    File URL: https://www.kent.ac.uk/economics/repec/1202.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sylvain Barde, 2012. "Of ants and voters: maximum entropy prediction and agent based models with recruitment," Post-Print hal-01071853, HAL.
    2. Farmer, J. Doyne & Kolic, Blas & Sabuco, Juan, 2021. "Estimating initial conditions for dynamical systems with incomplete information," INET Oxford Working Papers 2021-20, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    3. Zakaria Babutsidze, 2012. "Comments on the paper. "Of Ants and Voters: Maximum entropy prediction of agent-based models with recruitment" by S. Barde," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 33-36.
    4. repec:hal:spmain:info:hdl:2441/f4rshpf3v1umfa09l8sao0qa3 is not listed on IDEAS
    5. repec:spo:wpmain:info:hdl:2441/f4rshpf3v1umfa09l8sao0qa3 is not listed on IDEAS

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    More about this item

    Keywords

    Information entropy; knapsack problem; potential function; Schelling segregation.;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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