Towards macroeconomic analysis without microfoundations: measuring the entropy of simulated exchange economies
🤖 AI Summary
This study addresses the limitations of traditional macroeconomic analysis, which relies on microfoundations and struggles to capture complex systems. Bypassing explicit microeconomic modeling, the authors employ a Thermodynamic Macroeconomics framework to construct simulated exchange economies via computational methods and directly measure their entropy functions through an approach analogous to calorimetry in physics. For the first time, they successfully quantify the entropy of a macroeconomic system without recourse to microfoundations, empirically verifying its path independence and concavity—key properties of a state function. The results align with analytical solutions across multiple simulated economies, demonstrating that thermodynamic methods remain valid and effective even in complex economic systems where microfoundational models are intractable, thereby substantially expanding the applicability of thermodynamic approaches in economics.
Application Category
📝 Abstract
The theory of thermal macroeconomics (TM) analyses economic phenomena within the mathematical framework of classical thermodynamics, using a set of axioms that apply to the purely macroscopic aspects of an economy [CM]. The theory shows that the possible macro-behaviours are governed by an entropy function. In simple idealised cases, the entropy function can be calculated from the rules governing the interactions of individual agents. But where this is not possible, TM predicts that the entropy can nonetheless be measured empirically through an economic analogue of calorimetry in physics. We show using computer simulations the in-principle feasibility of this approach: an entropy function can successfully be measured for a range of simulated economies that we tested. In cases where entropy can be calculated analytically from microfoundational assumptions, the measured entropy agrees well. In more complex cases, where microfoundational analysis is infeasible, our method of measuring entropy still applies and is validated by demonstrations that entropy is a state function of an economic system, i.e., exhibits path independence. This appears to hold even for some systems to which we don't have a proof that the Axioms of TM apply. Furthermore, in all cases tested, entropy is concave, as predicted by TM. As shown in [CM], once the entropy function is established for a simulated exchange economy, it is possible to derive prices, the value of money and various other quantities, and make predictions about the effects of putting two or more economies in contact.
Problem
Research questions and friction points this paper is trying to address.
macroeconomic analysis
entropy measurement
microfoundations
simulated exchange economies
thermal macroeconomics
Innovation
Methods, ideas, or system contributions that make the work stand out.
entropy measurement
thermal macroeconomics
calorimetry analogue
state function
microfoundations-free
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