Computational Economics

, Volume 45, Issue 2, pp 337–358 | Cite as

Back to the Future: Economic Self-Organisation and Maximum Entropy Prediction

Article

Abstract

This paper shows that signal restoration methodology is appropriate for predicting the equilibrium state of certain economic systems. A formal justification for this is provided by proving the existence of finite improvement paths in object allocation problems under weak assumptions on preferences, linking any initial condition to a Nash equilibrium. Because a finite improvement path is made up of a sequence of systematic best-responses, backwards movement from the equilibrium back to the initial condition can be treated like the realisation of a noise process. This underpins the use of signal restoration to predict the equilibrium from the initial condition, and an illustration is provided through an application of maximum entropy signal restoration to the Schelling model of segregation.

Keywords

Information entropy Self-organisation Potential function  Schelling segregation 

JEL Classification

C02 C11 C63 D80 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.School of Economics, Keynes CollegeUniversity of KentCanterburyUnited Kingdom
  2. 2.Observatoire Français des Conjonctures Economiques, 69 quai d’OrsayParis Cedex 07France

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