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Arrow, General Equilibrium (Collected Papers). Varian, Microeconomic Analysis (Norton, New York, 1992). Sonnenschein, ed, 114–148, Harcourt Brace Janovich, New york (1971). Hurwicz, Preferences, Utility, and Demand, J. Samuelson, Economics (McGraw-Hill, New York, 1976). This process is experimental and the keywords may be updated as the learning algorithm improves. These keywords were added by machine and not by the authors.
#ADAM SMITH INVISIBLE HAND MATH FREE#
Prices in unregulated free markets are unstable against both noise and rising or falling expectations: Adam Smith’s stabilizing invisible hand either does not exist or doesn’t work, either in mathematical models of liquid market data, or in real market data. There are five inconsistent definitions of equilibrium used in economics and finance, only one of which is correct. Maximization of the Gibbs entropy of the observed price distribution of an asset would describe equilibrium, if equilibrium could be achieved, but equilibrium does not describe real, liquid markets (stocks, bonds, foreign exchange). Utility maximization does not describe equilibrium. Market price distributions cannot be rescaled to describe price movements as ’equilibrium’ fluctuations about a systematic drift in price. In the generalization to liquid markets and finance theory described by stochastic excess demand dynamics, I also show the following. Price as a function of demand does not exist mathematically either. A utility function generally does not exist mathematically due to nonintegrable dynamics when production/investment are accounted for, resolving Mirowski’s thesis. In deterministic excess demand dynamics I show the following. The results are supposed to represent mathematically the stabilizing action of Adam Smith’s invisible hand. Neo-classical economists assume that prices, dynamics, and market equilibria are supposed to be derived from utility. Neo-classical economic theory is based on the postulated, nonempiric notion of utility.
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