Subjective modelling of supply and demand—the minimum of Fisher information solution

Edward Piotrowski (), Jan Sladkowski () and Jacek Syska

Physica A: Statistical Mechanics and its Applications, 2010, vol. 389, issue 21, 4904-4912

Abstract: Two of the present authors have put forward a projective geometry based model of rational trading that implies a model for subjective demand/supply profiles if one considers closing of a position as a random process. We would like to present the analysis of a subjectivity in such trading models. In our model, the trader gets the maximal profit intensity when the probability of transaction is ∼0.5853. We also present a comparison with the model based on the Maximum of Entropy Principle. To the best of our knowledge, this is one of the first analyses that show a concrete situation in which trader profit optimal value is in the class of price-negotiating algorithms (strategies) resulting in non-monotonic demand (supply) curves of the Rest of the World (a collective opponent). Our model suggests that there might be a new class of rational trader strategies that (almost) neglects the supply–demand profile of the market. This class emerges when one tries to minimize the information that strategies reveal.

Keywords: Strategy selection; Fisher information; Entropy (search for similar items in EconPapers)
Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:389:y:2010:i:21:p:4904-4912

DOI: 10.1016/j.physa.2010.06.062

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