Can the Theory of Algorithms Ratify the “Invisible Hand of the Market”?
”It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard for their own interest.” Each participant in a competitive economy is ”led by an invisible hand to promote an end which was no part of his intention.”
Adam Smith, 1776.
With his treatise, The Wealth of Nations, 1776, Adam Smith initiated the field of economics, and his famous quote provided this field with its central guiding principle. The pioneering work of Walras (1874) gave a mathematical formulation for this statement, using his notion of market equilibrium, and opened up the possibility of a formal ratification.
Mathematical ratification came with the celebrated Arrow-Debreu Theorem (1954), which established existence of equilibrium in a very general model of the economy; however, an efficient mechanism for finding an equilibrium has remained elusive.
The latter question can clearly benefit from the powerful tools of modern complexity theory and algorithms. In this talk, we will provide an in-depth overview of the fascinating theory that has emerged around this question over the last decade.
KeywordsUtility Function Market Model Market Equilibrium Competitive Economy Excess Demand Function
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