Quantal Response Statistical Equilibrium in Economic Interactions: Theory and Estimation
Social science addresses systems in which the individual actions of participants interacting in complex, non-additive ways through institutional structures determine social outcomes. In many cases, the institutions incorporate enough negative feedback to stabilize the resulting outcome as an equilib...
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doaj-866d55beea704539a664d33e39c60a882020-11-25T02:29:16ZengMDPI AGEntropy1099-43002017-08-0119944410.3390/e19090444e19090444Quantal Response Statistical Equilibrium in Economic Interactions: Theory and EstimationEllis Scharfenaker0Duncan K. Foley1Department of Economics, University of Missouri-Kansas City, 5120 Rockhill Road, Kansas City, MO 64110, USADepartment of Economics, The New School for Social Research, 79 Fifth Avenue, New York, NY 10003, USASocial science addresses systems in which the individual actions of participants interacting in complex, non-additive ways through institutional structures determine social outcomes. In many cases, the institutions incorporate enough negative feedback to stabilize the resulting outcome as an equilibrium. We study a particular type of such equilibria, quantal response statistical equilibrium (QRSE) using the tools of constrained maximum entropy modeling developed by E. T. Jaynes. We use Adam Smith’s theory of profit rate maximization through competition of freely mobile capitals as an example. Even in many cases where key model variables are unobserved, it is possible to infer the parameters characterizing the equilibrium through Bayesian methods. We apply this method to the Smithian theory of competition using data where firms’ profit rates are observed but the entry and exit decisions that determine the distribution of profit rates is unobserved, and confirm Smith’s prediction of the emergence of an average rate of profit, along with a characterization of equilibrium statistical fluctuations of individual rates of profit.https://www.mdpi.com/1099-4300/19/9/444quantal responsemaximum entropyinformation-theoretic quantitative methodsincomplete informationlink functionprofit rate distribution |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Ellis Scharfenaker Duncan K. Foley |
spellingShingle |
Ellis Scharfenaker Duncan K. Foley Quantal Response Statistical Equilibrium in Economic Interactions: Theory and Estimation Entropy quantal response maximum entropy information-theoretic quantitative methods incomplete information link function profit rate distribution |
author_facet |
Ellis Scharfenaker Duncan K. Foley |
author_sort |
Ellis Scharfenaker |
title |
Quantal Response Statistical Equilibrium in Economic Interactions: Theory and Estimation |
title_short |
Quantal Response Statistical Equilibrium in Economic Interactions: Theory and Estimation |
title_full |
Quantal Response Statistical Equilibrium in Economic Interactions: Theory and Estimation |
title_fullStr |
Quantal Response Statistical Equilibrium in Economic Interactions: Theory and Estimation |
title_full_unstemmed |
Quantal Response Statistical Equilibrium in Economic Interactions: Theory and Estimation |
title_sort |
quantal response statistical equilibrium in economic interactions: theory and estimation |
publisher |
MDPI AG |
series |
Entropy |
issn |
1099-4300 |
publishDate |
2017-08-01 |
description |
Social science addresses systems in which the individual actions of participants interacting in complex, non-additive ways through institutional structures determine social outcomes. In many cases, the institutions incorporate enough negative feedback to stabilize the resulting outcome as an equilibrium. We study a particular type of such equilibria, quantal response statistical equilibrium (QRSE) using the tools of constrained maximum entropy modeling developed by E. T. Jaynes. We use Adam Smith’s theory of profit rate maximization through competition of freely mobile capitals as an example. Even in many cases where key model variables are unobserved, it is possible to infer the parameters characterizing the equilibrium through Bayesian methods. We apply this method to the Smithian theory of competition using data where firms’ profit rates are observed but the entry and exit decisions that determine the distribution of profit rates is unobserved, and confirm Smith’s prediction of the emergence of an average rate of profit, along with a characterization of equilibrium statistical fluctuations of individual rates of profit. |
topic |
quantal response maximum entropy information-theoretic quantitative methods incomplete information link function profit rate distribution |
url |
https://www.mdpi.com/1099-4300/19/9/444 |
work_keys_str_mv |
AT ellisscharfenaker quantalresponsestatisticalequilibriumineconomicinteractionstheoryandestimation AT duncankfoley quantalresponsestatisticalequilibriumineconomicinteractionstheoryandestimation |
_version_ |
1724834156740870144 |