This piece gives a brief summary of my work to date (2016-2021) in quantum economics.

The idea that the financial system could best be represented as a quantum system came to me (dawned on me? evolved?) while working on *The Evolution of Money* (Columbia University Press, 2016). “Money objects bind the virtual to the real, and abstract number to the fuzzy idea of value, in a way similar to the particle/wave duality in quantum physics,” I offered. “Money serves as a means to quantify value, in the sense of reducing it to a mathematical quantity – but as in quantum measurement, the process is approximate.” Price is best seen as an emergent feature of the financial system. I summarised this theory in two papers for the journal *Economic Thought*: “A Quantum Theory of Money and Value” and “A Quantum Theory of Money and Value, Part 2: The Uncertainty Principle“.

While I had some background in quantum physics – I studied the topic in undergraduate university, taught a course on mathematical physics one year at UCL, and encountered quantum phenomena first-hand while working on the design of particle accelerators in my early career – my aim in the book (co-authored with Roman Chlupaty) was not to impose quantum ideas onto the economy. My primary research interest was in computational biology and forecasting and I had not touched quantum mechanics in many years. The dual real/virtual nature of money just had an obvious similarity to the dual nature of quantum entities, and in fact I was surprised that I appeared to have been the first to make this connection in a serious way and come up with a quantum theory of money.

I was aware that a number of researchers were working in applying quantum models to cognition and psychology, but it was only after finishing the book that I learned about the area of quantum finance (I also discovered a separate paper on “Quantum economics” by the physicist Asghar Qadir from 1978, which argued that the quantum formalism was well suited to modelling things like economic preferences). The reason I hadn’t come across these works in my research about money was because just like in neoclassical economics there was no discussion of that topic. Nor was there much discussion of quantum phenomena such as entanglement or interference. Instead the emphasis in quantum finance (as this paper notes) was on using quantum techniques to solve classical problems such as the Black-Scholes option-pricing algorithm, or portfolio optimisation.

My motivation was completely different. In books such as *Economyths*, and *The Money Formula* (with Paul Wilmott), I had investigated the drawbacks and limitations of these traditional models – so rather than invent more efficient ways of solving them, I wanted to replace them with something more realistic. Money was the the thing which linked finance and psychology, so a quantum theory of money could be a first step in developing a new approach to economics.

I sketched out the basic idea as an *Economic Thought* paper “Quantum economics” which served as a blueprint for my 2018 book of the same name. It tied together the quantum theory of money, with ideas from quantum finance, quantum cognition, quantum game theory, and the broader field of quantum social science. The ideas were also summarised in a piece for *Aeon *magazine – which was when I found out why no one had probably bothered to develop a quantum theory of money. The article was not well received, by economists but especially it seemed by physicists, some of whom went out of their way to trash the idea.

I was not new to having my work come under criticism. Indeed, much of my career has focused on pointing out the drawbacks and limitations of mathematical models, which has frequently brought me into conflict with people who don’t see it that way, starting with my D.Phil. thesis on model error in weather forecasting (see *Apollo’s Arrow*). My book *Economyths *also drew howls of outrage from some economists. However quantum economics felt different, and seemed to touch on a range of taboos, in particular from physicists who have long resisted the adoption of quantum ideas by other fields. But quantum mathematics is not owned by physicists, it is simply an alternative version of probability which was first used to model subatomic particles, but also can be used to describe phenomena such as uncertainty, entanglement, and interference which affect mental systems including the economy.

While writing the book I developed in parallel an online mathematical appendix which presented some key results from quantum cognition, finance, and game theory (an early version was translated into Russian). Because my aim was to develop a theory of quantum economics, I also started applying quantum methods to some key economic problems, including supply and demand, option pricing, stock market behaviour, and the debt relationship which underlies the creation of money. This online appendix later grew into my technical book *Quantum Economics and Finance: An Applied Mathematics Introduction*, first published in 2020 and now in its second edition.

For supply and demand, my idea was to model the buyer and seller in terms of a propensity function, which describes a probabilistic propensity to transact as a function of price. A simple choice is to describe the propensity function as a normal distribution. The joint propensity function is the product of the buyer and seller functions. The next step is to use the concept of entropic force to derive an expression for the forces which describes the tendency for each party to move the price closer to their preferred price point. The joint force is just the sum of the forces for the buyer and seller. However there is a contradiction because the probability distribution does not match that produced by an oscillation. To resolve this, we quantize the force to obtain a quantum harmonic oscillator whose ground state matches the joint propensity function. This model, which sounds elaborate but is actually quite minimal in terms of parameters, applies to economic transactions in general, so has numerous applications, including the stock market. The paper “A quantum model of supply and demand” was published in the journal *Physica A* in 2020.

The question of how to price options is one of the oldest problems in finance. The modern method dates back to a 1900 thesis by Bachelier and is based on the concept of a random walk. For the quantum version, the logical place to start was with the quantum version of this which is a quantum walk. Instead of assuming that the log price will follow a normal distribution with a standard deviation that grows with the square-root of time, the model has two peaks which speed away from each other linearly in time. It therefore captures the psychological stance of an investor who has a bullish or bearish view on the asset (e.g. price might grow by 10 percent each year), but balances that with the possibility that the opposite might happen in order to obtain a fair price for the option. When coupled with the quantum model of supply and demand, the algorithm can be used to predict option price and volume. “A quantum walk model of financial options” was published in *Wilmott *magazine in 2021, and the theory was reported on the same year by the *Economist *in an article “A quantum walk down Wall Street“.

Finally a main question in quantum economics is the interaction between mind and money which underlies the debt relationship, and also the creation of money objects in the first place. Both of these topics are traditionally neglected in mainstream economics. In quantum economics it is easy to show that the debt relationship can be modelled as a simple circuit with two qubits, representing the debtor and creditor, entangled by a C-NOT gate which represents the loan contract. Interestingly, it turns out that the same circuit can be used to represent the decision-making process within the mind of a single person, where there is an interplay between a subjective context and the final decision. In quantum cognition, this is usually modelled as a two-stage process; however it can also be modelled using two entangled qubits, in which the context and the decision are separated out, as in the debt model. This result was published in a 2021 *Frontiers in Artificial Intelligence* paper, co-authored with Monireh Houshmand, called “Quantum propensity in economics“. A related paper published in *Quantum Reports*, that discusses applications including mortgage default, is “The color of money: threshold effects in quantum economics“.

For a full list of my research in quantum economics and finance, including links to these and other papers, please see the page Quantum Economics Resources. These findings and others are also presented in my technical book *Quantum Economics and Finance: An Applied Mathematics Introduction*, and for a general audience in *Money, Magic, and How to Dismantle a Financial Bomb: Quantum Economics for the Real World* (available 02/2022). The work continues! – if readers are interested in getting involved, please drop me a line here or through LinkedIn.

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