Economics with Richard Bleil?
Those who know me realize that I know nothing of economics, at any scale. My ability to manage money has left me desolate more than once, and I’m only solvent today because of my father’s will. It’s not that I don’t, or won’t, work. I’ve had some bad luck in my day, but I’ve also stood up at times that I knew that it would be better for me, but worse for others, if I simply sat down. So for somebody who gives so much away, and is so notoriously bad at money management, maybe I shouldn’t be writing a piece on economics.
The reality is that I’m not. This is about the discovery of a group of physicists who tested a hypothesis by applying the principles of quantum theory to economics, giving rise to Econophysics. The result is that today firms are hiring “ab initio” programmers for business applications, and these calculations are something that I know about.
First of all, let’s talk about the development of quantum theory. “Ab initio” is Latin for “from the beginning”. After the breakdown of classical Newtonian physics for subatomic behaviors (thanks a LOT, Heisenberg!), it became apparent that sub-atomic structure would need to be built from the ground up starting with what we know cannot change. So, for example, we know the charge of a nucleus (in chemistry, we assume the nucleus is a single particle), how many nuclei there are, and the number of electrons and their charge. We also know the masses of these particles. Putting all of this into one massive equation, however, is problematic especially since the motion of particles also are factors. So there are some assumptions.
For example, we assume the electromagnetic attraction of the nuclei are limited in distance when in fact they are not. The force felt by a nucleus, however, drops off quickly so this is not a bad assumption. And we assume that the nuclei are not moving. In fact, they are, but they move so slowly compared to that of the electrons that we can safely assume they are fixed in space. Other assumptions are not so good but necessary in order to complete the calculations before the universe comes to an end. For example, individual electron-electron interactions are replaced with an assumption that any given electron doesn’t “see” other electrons, but more of a general background of electrons.
With these assumptions, and the known electrostatic forces between charges (like repels, opposite attract although there’s a bit more to it than this), we let the computer calculate most likely locations of subatomic particles without telling where we expect them to be. The calculation is completed “from the beginning”.
When I was in graduate school, I read journals like the Chemical Physics Letters, and was fascinated by the work of some quantum theorists who wanted to see if these calculations could be applied to economics. They started with some basic assumptions. Money was mobile and free to flow wherever it liked, and businesses, and individuals, were fixed in space. They build potential functions analogous to the potential function of two charged particles that dealt with attraction and repulsion of the moving money. Of course, there were additional features that had to be built in, all requiring its own potential function, to deal with debt, credit, interest, fees and generally just all things related to the flow of cash. By writing these “potential functions”, they ended up with a mathematical formulation that, if they could solve it, would not tell them where the money is or how its behaving, but rather, where is the cash most likely to be found.
Ab initio calculations have never been about exactness. Heisenberg showed us that we cannot know absolutes, so instead the calculations deal with probabilities. Where are the electrons most likely to exist? Where is money most likely to be found? You can see how this would be important to the economically minded. If you wanted to take a chance on buying stock, wouldn’t you like to know the likelihood that the stock will go up (meaning money will go into that company in the future)? The physicists who did the initial research on econophysics were quite surprised to find that the application of quantum theory to money actually proved to have merit, enough that it’s still studied today. Several economic theories came out of this discipline that are still taught and studied in economics class today. What this field holds for the future I do not know, but I can tell you that ab initio calculations are incredibly complicated. No doubt, there is still much to be learned.
Bleil's Banter 