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Back to the Future: Economic Self-Organisation and Maximum Entropy Prediction

Barde, Sylvain (2014) Back to the Future: Economic Self-Organisation and Maximum Entropy Prediction. Computational Economics, 45 (2). pp. 337-358. ISSN 0927-7099. E-ISSN 1572-9974. (doi:10.1007/s10614-014-9422-2)

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This paper shows that signal restoration methodology is appropriate for predicting the equilibrium state of certain economic systems. A formal justification for this is provided by proving the existence of finite improvement paths in object allocation problems under weak assumptions on preferences, linking any initial condition to a Nash equilibrium. Because a finite improvement path is made up of a sequence of systematic best-responses, backwards movement from the equilibrium back to the initial condition can be treated like the realisation of a noise process. This underpins the use of signal restoration to predict the equilibrium from the initial condition, and an illustration is provided through an application of maximum entropy signal restoration to the Schelling model of segregation.

Item Type: Article
DOI/Identification number: 10.1007/s10614-014-9422-2
Uncontrolled keywords: Information entropy; Self-organisation; Potential function; Schelling segregation
Subjects: H Social Sciences > HB Economic Theory
Q Science > Operations Research - Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Sylvain Barde
Date Deposited: 16 Jul 2014 16:21 UTC
Last Modified: 29 May 2019 12:48 UTC
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