Related papers: Classical Economics: Lost and Found
What is the demand elasticity of statistical arbitrageurs that invest according to the advice of modern cross-sectional asset pricing models? Thirteen models from the literature exhibit strikingly inelastic demand, in contrast to classical…
This paper studies the economic role of persistent dispersion in allocations across agents. We develop a tractable model in which firms allocate resources under imperfect information and behavioral updating, generating sustained…
The usual canonical Hamiltonian or Lagrangian formalism of classical mechanics applied to macroscopic systems describes energy conserving adiabatic motion. If irreversible diabatic processes are to be included, then the law of increasing…
A thermodynamic approach to the description of economic systems and processes is developed. It is shown that there is a deep analogy between the parameters of thermodynamic and economic systems (markets); so each thermodynamic parameter can…
Accuracy of economic theories and efficiency of economic policy strictly depend on the choice of the economic variables and processes mostly liable for description of economic reality. That states the general problem of assessment of any…
Economies and societal structures in general are complex stochastic systems which may not lend themselves well to algebraic analysis. An addition of subjective value criteria to the mechanics of interacting agents will further complicate…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
The reasons which restrict opportunities of classical mechanics at the description of nonequilibrium systems are discussed. The way of overcoming of the key restrictions is offered. This way is based on an opportunity of representation of…
Motivated by the prevalence of prediction problems in the economy, we study markets in which firms sell models to a consumer to help improve their prediction. Firms decide whether to enter, choose models to train on their data, and set…
Financial models are studied where each asset may potentially lose value relative to any other. Conditioning on non-devaluation, each asset can serve as proper num\'eraire and classical valuation rules can be formulated. It is shown when…
Financial models do not merely analyse markets, but actively shape them. This effect, known as performativity, describes how financial theories and the subsequent actions based on them influence market processes, by creating self-fulfilling…
In two-stage electricity markets, renewable power producers enter the day-ahead market with a forecast of future power generation and then reconcile any forecast deviation in the real-time market at a penalty. The choice of the forecast…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
Within the frames of the analytical mechanics the method of the description of dynamics of nonequilibrium systems of potentially interacting elements is develops. The method is based on an opportunity of representation of nonequilibrium…
Standard economic theory assumes that agents in markets behave rationally. However, the observation of extremely large fluctuations in the price of financial assets that are not correlated to changes in their fundamental value, as well as…
Over the last decades, the distribution of income and wealth has been deteriorating in many countries, leading to increased inequalities within and between societies. This tendency has revived the interest in the subject greatly, yet it…
We propose a decentralized market model in which agents can negotiate bilateral contracts. This builds on a similar, but centralized, model of trading networks introduced by Hatfield et al. in 2013. Prior work has established that…
The average economic agent is often used to model the dynamics of simple markets, based on the assumption that the dynamics of many agents can be averaged over in time and space. A popular idea that is based on this seemingly intuitive…
We study decentralized markets with the presence of middlemen, modeled by a non-cooperative bargaining game in trading networks. Our goal is to investigate how the network structure of the market and the role of middlemen influence the…
Experimental economics has repeatedly demonstrated that the Nash equilibrium makes inaccurate predictions for a vast set of games. Instead, several alternative theoretical concepts predict behavior that is much more in tune with observed…