A Statistical Equilibrium Theory of Markets

Foley, Duncan K.

doi:10.1006/jeth.1994.1018

Cited by 230 publications

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“…In the following we describe a new way to interpret the equilibrium in the economic systems then we use it to obtain the wealth distribution in the market. The similar way was previously adopted by D. Foley in his maximum entropy exchange equilibrium theory [14,15,16,17,18]. Although we have not found any convincing interpretation yet for the entropy, its relation to the price and its dependence on the quantity of assets in the real market, but we hope find them by mining the financial data.…”

Section: Economic Systems In Equilibriummentioning

confidence: 56%

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Physical Premium Principle: A New Way for Insurance Pricing

Darooneh

2005

Entropy

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In our previous work we suggested a way for computing the non-life insurance premium. The probable surplus of the insurer company assumed to be distributed according to the canonical ensemble theory. The Esscher premium principle appeared as its special case. The difference between our method and traditional principles for premium calculation was shown by simulation. Here we construct a theoretical foundation for the main assumption in our method, in this respect we present a new (physical) definition for the economic equilibrium. This approach let us to apply the maximum entropy principle in the economic systems. We also extend our method to deal with the problem of premium calculation for correlated risk categories. Like the Buhlman economic premium principle our method considers the effect of the market on the premium but in a different way.

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Section: Economic Systems In Equilibriummentioning

confidence: 56%

“…We use the statistical (physical) interpretation for the equilibrium in the economic systems instead of its Walrasian (mechanical) picture. The latter description is inadequate to explain some real features of the market [20,13] but the former one may elucidate some of them [21,14,15,16].…”

Section: Economic Systems In Equilibriummentioning

confidence: 99%

Physical Premium Principle: A New Way for Insurance Pricing

Darooneh

2005

Entropy

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“…The basic idea in Foley (1994) is now to assume that the number of agents performing every legitimate transaction is so large that we can use Stirling's approximation to the factorial function, and replace this integer optimization problem with a classical entropy maximizing problem. If so, he can appeal to the Kuhn-Tucker theorem and see that the maximum entropy problem has a unique solution which can be described as follows:…”

Section: General Frameworkmentioning

confidence: 99%

“…More precisely: if transportation states with smaller total costs are more probable, the model must be of gravity type. Foley (1994) assumes that all feasible transactions are equally probable. In the absence of information this is of course a reasonable hypothesis.…”

Section: Introductionmentioning

confidence: 99%

Efficient Statistical Equilibria in Markets

Jørnsten

Ubøe

2005

SSRN Journal

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ABSTRACT. In this paper we will study statistical equilibria in commodity markets where agents have a specified utility attached to every transaction in their offer sets. A probability measure on the product of all offer sets is called benefit efficient if market transactions with higher total benefit are more probable. We will characterize all such probability measures and show how this defines a new family of statistical equilibria in commodity markets. If agents are indifferent with respect to utility, these equilibria reduce to the classical entropy maximizing states. Moreover, we show how to construct what we call the most likely explanation for a set of observed commodity prices.

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“…The first is the statistical equilibrium model of markets developed by Foley (1994Foley ( , 1996Foley ( , 2003 and extended by Toda (2010). According to Foley (1994), a statistical market equilibrium is defined by the maximum entropy distribution over transactions subject to the acceptability and the feasibility constraints. In this paper I clarify the relation between maximum entropy and Bayesian inference, which seems to be still relatively unknown in the economics literature.…”

Section: Introductionmentioning

confidence: 99%

Bayesian general equilibrium

Toda

2014

Econ Theory

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In this paper I build a general equilibrium model of non-optimizing agents that respond to aggregate variables (prices and average demand profile of agent types) by putting a 'prior' on their demand. An interim equilibrium is defined by the posterior demand distribution of agent types conditional on market clearing. A Bayesian general equilibrium (BGE) is an interim equilibrium such that aggregate variables are correctly anticipated. Under weak conditions I prove the existence and the informational efficiency of BGE. I discuss the conditions under which the set of Bayesian and Walrasian equilibria coincide and show that the Walrasian equilibrium arises from a large class of non-optimizing behavior.

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A Statistical Equilibrium Theory of Markets

Cited by 230 publications

References 0 publications

Physical Premium Principle: A New Way for Insurance Pricing

Physical Premium Principle: A New Way for Insurance Pricing

Efficient Statistical Equilibria in Markets

Bayesian general equilibrium

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