Monday, July 7, 2014

Quantum Economics

The wave nature of the electron is what makes atoms have the properties that they do.  It also means that we cannot think about the electron in an atom as a little ball whirling about the nucleus, but a cloud of probability that is smeared out over the orbit.

NOTE:  This is an older post I worked on a while ago and abandoned.  I finally revised it today.

In Quantum Mechanics, Physicists try to describe the nature of the atom, in part by admitting that you can't describe the nature of the atom, except in terms of probabilities.   And the uncertainty principle basically states that you can't really accurately measure the position of a particle and its momentum, or more precisely, the more you know about one variable, the less you know about the other.

In the mid 20th Century, some economists came up with a Quantum Economic Theory, which is interesting only in its obtuseness.   It tends to focus on the macroeconomics of societies in general and even international economics, for example, arguing for an international currency.   I am not sure this is a proper application of the term "Quantum" as macroeconomics is looking at the large picture, and not economics at the particle level.

And the particle level, to me, anyway, would be the economic actions of individuals, like you and me, who are mere particles in a larger economic structure that exists planet-wide.   And it is that that level that I think some aspects of Quantum Theory can be applied to economics, not at the macro level.

Each of us is like an electron in an atom.  We have certain predictable behaviors, but only in terms of probabilities.   Most of us follow a well-worn path, but there are are outliers as well.   We do not always follow predictable rules and paths.

For example, Adam Smith, with his famous "invisible hand" of the marketplace, posited that in general, a free market will find, automatically, the best price for goods or services, in response to the law of supply and demand, and thus remain in equilibrium - much as an atom in its ground state.

The problem is, of course, that just as electrons do odd things, so do people.   While the bulk of us will follow the herd and try to optimize our outcomes according to the "invisible hand" of the marketplace, there are always outliers who will oddball things with their money.   And these can be predicted and plotted on a chart, much like the probabilistic mapping of electrons as shown above.

So, for example, while the vast majority of folks will invest their money in fairly safe and sound investments, some will go for wild, risky things, which may pay off - or leave them bankrupt.   While still others will blindly believe idiotic nonsense and either choose not to invest at all, or give their money to a fraudster, con-artist, or MLM scheme.

In a way, it reminds me of a model used to design staircases for evacuation of buildings.   When designers assumed that each person would walk down the stairs at a given rate, they could design a staircase that would evacuate even a large building in minutes.  In practice, it didn't work.   Not all people behaved the same.  Some tried to walk up the staircase.  Others were too slow or uncertain.  Still others just ran around in circles.   When these predictable and probable behaviors were modeled, the staircases could be better designed to handle real-world evacuations.

And this is predicable, with certainty, in any given size group of people.   You get enough people together, you can rightly assume that some of them will exhibit this outlier behavior.   It is a predictable outcome.

Of course, as a society, we have this aversion to letting people starve to death, when we live in plenty.  So we have created social "safety nets" for these outlier people who find themselves "less fortunate" that us (their situation usually having less to do with fortune than with their own actions or inaction).  So our free-market, in terms of investing, is not really free at all, as no one is truly free to utterly fail.   You can blow it all on drugs, or not invest at all, or invest poorly, and still expect to get Social Security, SSI, food stamps, or any one of a number of programs.

This, of course, skews the probability somewhat.  Our distribution of outcomes is no longer a smooth map, but one with a flattened side.   The electrons all have a minimum energy level that they cannot sink below.

Perhaps this is all a bit of nonsense.  Well, actually not perhaps.   But I guess the point is, when we talk about public policy and behavior of individuals, we have to expect this quantum effect in behavior.   You can try to steer or goad people into certain behavioral modes, and there will always be an outlier group who decides to do weird, oddball, or even criminal things.

And a lot of our public policy is predicated on people acting in concert, dancing to a tune set by Mr. Smith's Invisible Hand.   We are told to invest in our 401(k) and guided by tax incentives.   And yet, many choose not to do so - at all.  And many folks who do, make horribly bad choices, which over time, leave them destitute.

The alternative, of course, is a forced arrangement of electrons into their shells, to their specific states, where we know their speed and position with accuracy.   Rather than relying on their probabilistic distribution, we can force them into energy states and insure a perfect outcome for everyone involved.   Socialist and Communist States have tried to do this, with little or no success.  Everyone ends up in a ground state - a lowest common denominator of existence.   And the outlier behavior doesn't vanish, it merely moves underground.

I am not sure what the relevance of all of this is, other than it got me to thinking that government policies are often predicated on coercing or inducing people to do certain things (pay taxes, sign up for Obamacare, contribute to a 401(k), or whatever) and for whatever reason, a certain percentage of people will not do what the government intends, or do quite the opposite.   This is Quantum behavior, and sort of predictable, when you get a large group of people together.