Thermoeconomics: Thermodynamics as a model of market behaviour
Nick Chater (Behavioural Science Group, Warwick Business School) and Robert MacKay (Mathematics,
Warwick)
This mini project seeks to explore a new analogy between thermodynamics and microeconomics. We
consider a “market” in which agents propose, and sometimes make, trades with each other: the
probability of making a trade is determined by the “gain in utility” that the agents obtain from trading.
Under certain conditions, it is possible to view a system of such trading agents as governed by a global
potential function.
The goal of this mini-project is to systematically explore the relationships between this type of economic
system and the traditional theory of thermodynamics and statistical mechanics. Preliminary analysis has
indicated that there are close parallels in the economic context and the gas laws. Processes by which
pressure and temperature come into equilibrium in the thermodynamic context appear closely
analogous to processes by which prices come into equilibrium when economies are linked by trade
and/or migration (i.e., agents moving between one economy and the other).
The mini project will contain a number of elements, which might include:
(i) a literature review of similar prior ideas, both within conventional economics, and within the
“econophysics” tradition.
(ii) Analytically exploring the mathematical relationships between the two domains.
(iii) Computational simulations.
An ideal background for this project would be a working knowledge of thermodynamics, and an interest
in the mathematical modelling of economic and social phenomena.
The aim of this research is to explore radically new approaches to microeconomics, which break away
from the assumptions of fully rational agents and perfect equilibrium. Such a fundamental recasting of
the foundational economic questions has the potential to have a significant impact on future
developments in economics and social sciences more generally. In particular, it is very likely that there
will be a rich range of Ph.D. opportunities arising from this work.
Users of this work will be primarily economists and social scientists. As well as being of direct interest to
academic researchers, this work will have considerable relevance to those involved in practical
modelling of human behaviour in the commercial and public sectors. Dr Henry Scott, Chairman of
Decision Technology Ltd, a 15 person research consultancy based in London, has expressed considerable
interest in this work and its potential applications. Decision Technology is a former spin-out company of
Warwick University, co-founded by Nick Chater.