Current version: download.
These notes are our attempt to re-develop economic theory from scratch, namely starting with the axiom that individuals optimize what happens to them over time, not what happens to them on average in a collection of parallel worlds. The latter, surprisingly, is the starting point of the currently dominant form of economic theory.
The new formalism is being developed at the London Mathematical Laboratory. The lectures were first presented at a winter school on complex systems in Chandigarh, India, as part of a collaboration between the Indian Institute of Science and Educational Research Mohali and the Santa Fe Institute. The lectures were given to a group of about 50 students and have since then been downloaded thousands of times. We intend to publish them as a book when they have fully matured.
|2018-06-30||6.6MB (136 pages)||Download||Ch.1: discussion of random variable, stochastic processes, ergodicity.
Ch.2: general mapping dynamics utility function (beyond Kelly, includes historical example of square-root Cramer utility).
Ch.3: log-normals vs. power laws, sums of log-normals, random-energy model.
Ch.4: New chapter. Re-allocating Geometric Brownian Motion (RGBM). Analytic solution of RGBM. Analysis of US wealth data.
Ch.5: Applications of stochastic market efficiency: solution of the equity premium puzzle, central-bank interest rate setting, fraud detection, a theory of noise. New data analysis, including tests of predictions for SP500 total return, DAX, bitcoin, Bernie Madoff’s Ponzi scheme.
|2017-08-24||4.5MB (96 pages)||Download||Corrected bullet point 4, p.26.|
|2017-07-12||4.5MB (96 pages)||Download||Harmonised notation.|
|2017-04-18||4.5MB (96 pages)||Download||Fixed some references and typos.|
|2017-03-04||4.5MB (96 pages)||Download|