Why Quantum Economics is quackery on stilts.

David Orrell writes in Aeon-

In quantum physics, attributes such as position or momentum are fundamentally indeterminate until measured, and according to the uncertainty principle cannot be known beyond a certain precision. Similarly, money’s use in transactions is a way of attaching a number (the price) to the fuzzy and indeterminate notion of value, and therefore acts as a kind of quantum measurement process. When you sell your house, you don’t know exactly how much it is worth or what it will fetch; the price is revealed only at the time of transaction.

Is this true? No. A particle's position and momentum are conjugate variables. Uncertainty arises because a non-zero function and its Fourier transform cannot both be sharply localized. Value and price are not conjugate variables. Both are unbounded. This is the hoary old 'paradox of value'- whereby someone, or indeed all beings, may, due to exigent circumstances, get very high or (if human kind can propagate itself without limit in time) infinite value from something ordinary- e.g. a 5 dollar screwdriver may avert some thermonuclear catastrophe- whereas the price of something valuable- e.g. clean air- may be zero because no scarcity, or opportunity cost, arises.

Furthermore, there is no 'observer effect' arising out of the energy used to make the observation.  Why? An economic transaction involves making precise something which previously was psychological or sociological and, in that respect, may have been fuzzy or indeterminate. Your house's value and its market price are in fact measured at the same time- the time when you exchange contracts. It is a different matter that some coercion or fraud may have been involved in which case the contract may be set aside.

One of the more mysterious aspects of quantum physics is that particles can become entangled so that they become a unified system, and a measurement on one affects the other instantaneously. In economics, the information encoded in money is a kind of entanglement device, because its creation always has two sides, debt and credit (for example modern fiat money represents government debt). And its use entangles people with each other and with the system as a whole, as anyone with a loan will know. If you go bankrupt, that immediately affects the state of your creditors, even if they don’t find out straight away.

Nonsense! If I go bankrupt, my creditors aren't affected at all till their creditors find out and decide that this fact materially affects my lender's own balance sheet. Suppose I go bankrupt today and my portfolio is liquidated in a month's time by the Receiver and, because of a stock market rally, all creditor's receive their money back. In this case, there is zero impact on my creditors. There was no 'entanglement' at all. By contrast, quantum entanglement means real effects occur instantaneously in a predictable way.
Economics only looks at Transactions of a contractual kind- i.e. one's where price and quantity are specified simultaneously and exactly. It is true that some contracts are 'incomplete' because it is costly to specify every state of the world. However 'Law and Economics' clarifies the nature of these incomplete contracts. Adjudication, 'buck stops' indeterminacy in this regard. It is never the case that if price is known, quantity can't be known or vice versa. Both are simultaneously determined each time a deal is struck.
Of course, the real world isn't purely Economic. We have non monetized relationships which Sociology and Psychology investigates. These relationships may be fuzzy. It may be the case that when a cash value is placed on an element in a relationship, or psychological state, then something else is affected by 'entanglement'. Thus, one can speak of a 'moral economy' of fuzzy mutual obligations. I may feel an obligation to a neighbour of my parents in Delhi who helps them from time time for purely sociological or psychological reasons. I feel no similar obligation to a tradesman who sells them a good or service.
Sociological or psychological forces may be largely based on memory. It may be that some sociological or psychological event changes how things are remembered in a macroscopic way. Thus, in the old days, loyalty to the feudal clan chief or landlord may have had Sociological and Psychological effects of a particular type. After a 'Revolution' these effects may be reversed. My memory of my family's 'obligations' to such and such family may turn into a memory of not 'obligation' but 'exploitation' in an instantaneous manner. 'Values', of a Social or Psychological sort may have this 'entanglement' property.
  Economic activities too display some 'hysteresis' or 'path dependence'. However, this 'path dependence', which arises from non-commutative market operations, can be smoothed away, Economic processes can be rendered ergodic and 'memoryless', by some mechanism provided within the market itself. However, this type of 'hedging' encounters a problem with 'income effects'- i.e. a situation where a transaction has a big enough effect to change preferences- and so we can't say that Economic processes, over-all, are wholly ergodic nor that such transactions can be 'super fair' or 'envy free' because we can't always guarantee that we can unwind them costlessly so that all agents can return quickly to their original position. This does give rise to a notion of entropy. It doesn't give rise to a notion of entanglement.

According to quantum physics, matter is fundamentally dualistic in the sense that it is composed, not of independent, billiard ball-like atoms, but of entities that behave in some ways as ‘virtual’ waves, and in other ways as ‘real’ particles. Neither the particle nor the wave description is complete by itself. This sounds confusing – but the same can be said of money, which is also real and virtual at the same time. For example, a coin is made by pressing a stamp into a metal slug. The stamp specifies the numeric value of the coin, while the metal represents its value as an object that can be owned or exchanged. It therefore lives partly in the virtual world of numbers and mathematics, and partly in the physical world of things and people and value, which is one reason for its perplexing effects on the human psyche.

Rubbish! The metal in my coin does not 'represent its value as an object that can  be owned or exchanged'. When FDR signed  Executive Order 6102 what happened was that some coins in my pocket- by virtue of their being made of a particular metal- ceased to have value 'as an object that can owned or exchanged'.
No 'perplexing effect on the human psyche' arose as a result.
I suppose, money may represent a scandal for Sociology or Psychology. Pip, in 'Great Expectations', gets a shock when he discovers that it is a convict, not an heiress, who has 'made him a gentleman'. People do 'live partly in the virtual world of numbers and mathematics' in the sense that they have Incomes and Wealth endowments not immediately known from their bodily constitution. I might guess that a man with a superb physique earns more than a weedy specimen if both are engaged in a field where physical strength determines economic success. However, such conditions do not obtain in the laboratory or on the Stock Exchange. The weedy fellow may have some mental gift or social network membership which places him far above the muscular fellow who is merely a paid drudge.
In the Economic realm, however, there is no difference between the financial and the real economy save such as might arise by reason of Uncertainty regarding the price vector. However, this Uncertainty pertains to the Future as a whole. If the Future is predictable- even stochastically (i.e. there is no Knightian Uncertainty)- then a sophisticated Economy would in fact be increasingly ergodic. Some transactions could indeed become 'super fair' or 'envy free'- i.e. they could be quickly rewound. In this case, since operator non-commutativity disappears, there is no indeterminacy or path dependence. 'Entanglement' or 'conjugacy' derived from (convex) duality has no role to play. All that matters is that information get cheaper and more ubiquitous, transaction costs fall, and 'income effects'- i.e. the possibility of a given transaction changing substitutability- become inconsequential. If this happens predictably, Economics ceases to matter very much. An invisible hand is doing its work in the background in a manner which allows us to concern ourselves with other things. We need worry as little about Money as we do about how the centimeter or the kilogram is defined.

Throughout its history, money has alternated between these two sides, presenting either as a virtual system for accounting (clay cuneiforms in ancient Mesopotamia, wooden tally sticks in early Medieval England, electronic money today), or as a treasured thing (Ancient Greece and Rome, the gold standard), while retaining the essential characteristics of each.

Is this man utterly mad? Does he think a page from an accountant's ledger is money? What matters is the trustworthiness of the guy issuing the promissory note or the guy to whom a Banker has extended credit in the shape of an overdraft facility. If such people always make good decisions and clear their debts promptly then there is no monetary problem because all transactions have gone ahead on the basis of a justified true belief. Where, however, there is Knightian Uncertainty- in other words, where even the best laid plans of the most trustworthy people can go awry- there is a problem with Money as there is with Economics. It is that ex ante and ex post might not match up. Disequilibria may arise. We might want to specify some mechanism to unwind such situations- i.e. reverse all transactions so as to 'go back to square one' before the unexpected event occurred. But this may be too difficult. Furthermore, the attempt to do so might throttle the market.
In Biblical times, there was the concept of the 'Jubilee'- a year when all debts were forgiven so that people could return to the ancestral land they had mortgaged or otherwise lost. This would be wholly impractical now. The post-crash demand for something similar hasn't been met. Instead in America and some other countries, the State assumed downside risk and supplied liquidity to permit deleveraging. However, the result was manifestly inequitable. It is in this context that, not Quantum, but quack Economics has gained salience.

The dichotomy is also reflected in our two main theories of money: chartalism, which says that money represents a virtual debt to the state; and bullionism, which says it boils down to metal.

Utterly foolish! Money is Credit- that is, it is the Belief that a certain benefit will accrue. That's why Banks can 'create money' far in excess of their holdings of either bullion or Government scrip. If Banks have weak balance sheets, they get disintermediated. What matters for Credit Creation is the perception of Trustworthiness and Hegemonic position. If the State won't assert it, something else will but no entity can ever tame Knightian Uncertainty completely. The Poor we may not always have with us- it is possible to eliminate poverty- but Uncertainty can't be abolished. Any attempt to do so will backfire catastrophically. We weren't created by an Occassionalist God. We evolved on an uncertain fitness landscape.

Most economists ignore the debate and treat money as an inert medium of exchange with no special properties of its own. The situation therefore resembles the old debate about whether light was a virtual wave (Aristotle) or a real particle (Isaac Newton). Eventually, quantum physicists came to the conclusion that light isn’t a particle or a wave, it is both at the same time. Most people didn’t care, and just worried about keeping the lights on, and so it is with money.

No. Economists ignore money and concentrate on the Real Economy. The conclusion of the Physicists was that Light, in certain respects, behaved like a particle and, in other respects, like a wave, not that it was both. In the case of money, it is both a unit of account and a store of value as well as being a medium of exchange.

It is something of a cliché to say that the discrete, dualistic, entangled and uncertain behaviour of quantum matter challenges every aspect of our commonsense worldview. But it does not seem quite so bizarre or alienating when viewed from an economic perspective – in fact, we deal with it every time we go shopping or cash a cheque. The point is not that quantum mechanics can be viewed as a metaphor for understanding money, but that the economy is a quantum system in its own right, with its own very real versions of measurement, indeterminacy and entanglement.

This is batshit crazy. Physics deals with inanimate objects with an objective existence. Money is conventional. The Judiciary, or the Executive, or the Legislature, or just the market of its own bat, can change that convention and does so almost continuously.

An advantage is that these concepts lack the obscure and confusing nature of their counterparts in physics. You don’t need to be an Albert Einstein or an Erwin Schrödinger or have a degree in quantum mechanics to know that value is uncertain, or to understand that tapping your credit card initiates a virtual money transfer.

WTF? Tapping your credit card leads to a real money transfer, not a virtual one! My Mum once decided to get us to memorise Shakespeare by offering a money reward. Life fools, my sister and I then memorised large chunks of Shakespeare in the belief that Mum would hand over some large multiple of our pocket money. Did she actually do so? Nope. She produced a pair of little ledger books with our names on it and wrote down the sums in question as credits to our Accounts. This was a virtual transaction. The notion was that we'd accumulate money in these imaginary accounts which Mum would one day discharge. We immediately saw through the cheat and stopped memorising Shakespeare. I went a step further and stopped doing my homework. I considered it morally equivalent to Shylock's demand for a 'pound of flesh'.

The quantum nature of money only comes fully into its own, however, when it interacts with another delicate quantum system – the one that designed it: our brains.

If our brains are a delicate quantum system, they can't implement the design of anything. The moment they commit to one design, no 'delicate quantum system' of entangled possibilities remains. It has collapsed.

The most disturbing and weird feature of quantum physics, at least for quantum physicists, was that it seemed to hold out a role for consciousness. According to the standard ‘Copenhagen interpretation’, a particle such as an electron is described by a mathematical wave function, whose amplitude at any point describes the probability of finding the electron at that location. This wave function ‘collapses’ to a certain value during the measurement process. No one knows how this collapse occurs, but a conscious observer is usually assumed to be involved, which seemed to undercut the idea of physics as a purely objective science. (It tells you something about science that consciousness – the one thing we all have direct experience of – can be considered disturbing and weird.) It is perhaps unsurprising then that consciousness, and the way that we pattern our thoughts, seems to have much in common with quantum physics.

Measuring something, or deciding to do something, both involve the expenditure of energy. That by itself changes things. It is not surprising at all that our thinking about a subject should have something in common with our thinking about how we think. Suppose you hear me describe some one as 'tall' when he is in fact the same height as myself. Would you really be surprised if I described myself as 'tall' for the purposes of a matrimonial advertisement?

One of the hottest areas in economics, especially since the crisis, has been behavioural economics, which was founded in the 1970s by the psychologists Daniel Kahneman and Amos Tversky. The most basic lesson of behavioural economics seems to be that making decisions is hard, so we look for shortcuts. And we are easily influenced when someone – the state, an advertiser, our social group, or even our own habits – supplies that shortcut. For example, we prefer to stick with what we know and we dislike change, which explains why investors often cling on to shares that do nothing but go downhill. Recency bias means that we put too much weight on new information – like last year’s investment returns – than older information – such as historical returns. And in general our decisions are shaped by things such as history and context.

So, human decisions aren't a Markov chain. They are subject to hysteresis. Quantum channels are either memoryless simply or else have artfully recreated memory. This is not the case with hysteresis in the behaviour of organic matter.
Most 'behavioral' results are not re-duplicable in other laboratories. There is a full blown 'Replication crisis'. Kahneman weasels out of it by saying the original author should be involved in the replication. Yeah right! And Bernie Madoff should be his own external auditor!

However, while behavioural economists can model these effects, they can do so only on a case-by-case basis. And a number of scientists believe that the problem is not so much that people are being irrational; it is just that they are basing their decisions, not on classical logic, but on quantum logic. After all, quantum systems, such as us, are intrinsically uncertain and affected by history and context.

Sheer bullshit! Academic Economists have paid too much attention to expected utility maximisation and too little to 'Regret minimization' or Hannan consistency.

A new kind of economics will point the way to a better, fairer economy. Or at least one less likely to blow up.

There is no evidence for this view at all.

One person to make this connection was the Pakistani mathematical physicist Asghar Qadir, who pointed out in 1978 that quantum mechanics seems a better fit than classical mechanics to modelling the vagaries of economic behaviour.

That paper is illiterate nonsense.

His paper made few waves, but in the 1990s a number of researchers working in social sciences such as psychology showed how our decision-making at the individual or societal level can be modelled and even predicted using a quantum formalism. This grew into the field of quantum cognition and later quantum social science. As the political scientist Alexander Wendt noted in Quantum Mind and Social Science (2015), the situation is again similar to physics at the start of the 20th century: ‘In both domains rigorous testing of classical theories had produced a string of anomalies; efforts to explain them with new classical models were ad hoc and partial; and then a quantum theory emerged that predicted them all with great precision.’

What valid predictions has this quantum quackery produced? None at all.

At the same time, other researchers were applying the quantum formalism to the area of quantitative finance, which is used for modelling the behaviour of financial markets. It turned out that many of the formulas regularly used by ‘quants’ to value derivatives such as options (the right to buy or sell a security for a set price at a future date) could be restated as quantum effects. The Black-Scholes equation, for example, can be expressed as a version of the Schrödinger wave equation from quantum physics. Markets even have their own version of an uncertainty principle (which will come as no surprise to investors).

So what? Black-Scholes is wrong. Their hedge fund went tits up.

To date, the focus in quantum finance and quantum cognition has primarily been on reproducing the results of neoclassical or behavioural economics using the methods of quantum physics. Combined with quantum money, though, the result I believe points towards a new kind of economics that will overturn the most basic assumptions of traditional economics, and point the way to a better, fairer and more sustainable economy. Or at least one less likely to blow up

In plain words- this 'rocket science' is mere puffery for the usual sort of swindling Hedge Fund.

So how to define this new, quantum-inspired economics? It is not the science of scarcity, and it certainly isn’t the science of happiness (which is not to say these things aren’t important); rather, it can be defined as the study of transactions that involve money.

 

So, it is just plain old financial economics.

Instead of assuming that market prices represent the intersection of made-up curves and optimise utility, prices are seen as the emergent result of a measurement procedure.

Price vectors don't 'optimise utility'. Utility is maximised, absent Uncertainty, under the constraint of the price vector. Measurement procedures don't give rise to emergent phenomena. Prices don't emerge, they already exist and the activity of arbitrageurs causes them to converge in open markets.

Rather than modelling the economy as a kind of efficient machine, it makes more sense to use methods such as complexity theory and network theory that are suited to the study of living systems, and which as mentioned above are now being adopted in economics.

Do arbitrageurs exist in complexity or network theory? If so the former exhibit 'oracles' and so complexity classes don't matter, whereas the latter get reconfigured with the arbitraguer gaining salience and other connections getting vitiated.

One tool is agent-based models, where the economy emerges indirectly from the actions of heterogeneous individuals who are allowed to interact and influence each other’s behaviour, mirroring in some ways the collective dance of quantum particles. Agent-based models have managed to reproduce for example the characteristic boom-bust nature of housing or stock markets, or the effect of people’s expectations on inflation.

So what? Observations of sunspots or the hemlines of skirts have done the same thing. It is not difficult to do.

Meanwhile, network theory can be used to illustrate processes and reveal vulnerabilities in the complex wirings and entanglements of the financial system.

Just asking a guy who has experiential knowledge is a better option. Theorists without empirical knowledge will only tell you what you want to hear.

Because it starts from different assumptions and uses different methods than mainstream economics, the quantum version also comes to very different conclusions and predictions. Instead of assuming that market forces drive prices towards a stable equilibrium, it sees the economy as driven by complex feedback loops, including those that affect the creation and destruction of money by private banks. One conclusion is that the risk models currently taught in universities and business schools, and relied upon by businesses and financial institutions, are not fit for purpose (as many guessed after the last crisis).

Knightian Uncertainty militates for 'Regret minimising' strategies. It is probable that volatility in some markets is 'regret minimising' though it appears to waste resources.

Instead of rational economic man, who makes decisions selfishly to optimise his personal utility, we have quantum economic person, who is unselfishly entangled with other quantum economic people.

Rational economic man is interdependent with others. The theory of externalities captures this. Entanglement does not. The former is a prescriptive theory. The latter is just pseudo scientific pi-jaw

Happiness is therefore not a solo pursuit that economists can calculate and optimise.

Economists are concerned only with choice under scarcity. Happiness can be unbounded even where there is little to eat.  

And instead of seeing the economy as a machine devoid of such things as will, volition and personal responsibility

as opposed to what? Seeing it as a lazy teenager who must be scolded to do her homework?  

– Milton Friedman, for example, wrote in 1953 that economics is ‘in principle independent of any particular ethical position or normative judgments … [It] is, or can be, an “objective” science, in precisely the same sense as any of the physical sciences’ – quantum economics (if we can call it that) sees the economy as a living system where ethics plays an important role.

So, scolding the economy and telling it to straighten up and fly right is a productive way to spend the time. Why not also scold the environment or tell the Globe to stop warming itself incessantly?  

One lesson from the crisis was that economists were heavily implicated in the financial system that they were responsible for regulating, for example through highly paid consulting gigs; as in quantum physics, the observer is never separate from the system.

But, Economics has a theory for this- it is called Mechanism Design and is informed by incomplete Contract theory. Quantum Economics has no theory in this regard. It is just hot air.

And while neoclassical economics treats ‘market failures’ such as economic inequality and environmental degradation as aberrations or externalities, from a quantum perspective they appear more to reflect the conflict inherent in money between numeric price and real value, as manifested in a debt-based financial system that prioritises growth above all else.

What is this 'real value'? It is unknowable because the future fitness landscape is uncertain. There is no 'conflict inherent in money'. There is Knightian Uncertainty about the real interest rate.
A debt-based financial system does not 'prioritise growth above all else'. Only a command economy can do so.

The theory therefore builds on the findings of thinkers such as the English chemist Frederick Soddy (who switched to economics after being awarded a Nobel Prize in 1921 for his work on the basic properties of radiation), the American ecological economist Herman Daly, and many others, who have made similar statements.

Soddy was an anti-semitic crank. Like Daly, he was wrong about fossil fuels running out.

A theory is likely to be accepted if it tells a story that benefits a powerful constituency

So is a lie. 

In fact, many aspects of this quantum economics can be found in so-called ‘heterodox economics’ – ie, theories that don’t fit with the mainstream.

because they are shit. 

And the problems were summed up as long ago as 1926, when John Maynard Keynes – perhaps inspired by the quantum revolution that was then in full swing, or perhaps mindful of that piece of lead piping left on the ground – wrote that: ‘We are faced at every turn with the problems of Organic Unity, of Discreteness, of Discontinuity – the whole is not equal to the sum of the parts, comparisons of quantity fail us, small changes produce large effects, the assumptions of a uniform and homogeneous continuum are not satisfied.’

Keynes was saying that the 'atomic hypothesis' which works in physics breaks down in 'psychics' (utility theory).  We could speak of synergy which is covered under the theory of externalities. However, what Keynes was really concerned with was the frequency theory of probability. Essentially, in quantum physics a wave function is a probability distribution. Because of Knightian Uncertainty- i.e. our inability to specify all possible states of the world- an expected utility function can't be frequentist. It must have some other property- e.g. be Bayesian or 'regret minimizing' or be informed by 'animal spirits' etc. 

Conventional mechanistic models can no more incorporate such effects than pre-quantum models of the atom could incorporate quantum effects. Unfortunately, mainstream economists failed to recognise or act on this, but instead remained wedded to their classical approach.

Rational Expectations based models aren't mechanistic. They have been mainstream for forty years.

So will the heterodox become the new orthodoxy, and economics go quantum?

Economics can always increase the dimensionality of its configuration space for any specific purpose- e.g differentiating between outcomes by referring to some other metric- e.g. social inclusion.  

It would be nice to say that the answer will depend on some impartial test, like the ability to make accurate predictions, but of course this is far from being the case; neoclassical economics has remained in place for a century and a half without much of a predictive track record to boast of (the main achievement of the efficient-market hypothesis was to provide an excuse).

Actually, it says there is a 'return on ability' or a return on intellectual property, or (more likely) 'insider trading' wherever a hedge-fund consistently beats the market.  

Instead, a theory is likely to be accepted if it tells a story that benefits a powerful constituency.
The mainstream mantra that the economy is stable, rational and efficient was perfect PR for the financial sector,

But its not one they used. They were telling the opposite story- viz. that they had hired really smart guys who could beat the market for you.  

so quantum economics can’t compete with that.

Nonsense! In a frothy market, a guy who looks like a mad scientist and who says he has a PhD from Princeton in Rocket Science can indeed make a lot of money till the SEC shuts him down. 

Its natural constituency is instead similar to that which fuelled the anti-nuclear protests: people – including scientists and non-economists – who have lived through the recent financial crisis, and who want to prevent it from happening again.

So smart people will stick with mainstream Econ while jobless nutters will gravitate to Quantum Economics- till someone invents 'Superstring Finance' or Tachyonic Banking' or something even more ridiculous.

Economics, which models itself after 19th-century physics, is clearly due for an update.

No. Quantum effects do not arise in our macroscopic world. There is no need for an update because we are macroscopic beings.

But here ‘revolution’ doesn’t seem to be quite the right word, because the revolution already happened a century ago. What we need is a recognition. As Marshall McLuhan wrote in Laws of Media: The New Science (1992): ‘I do not think that philosophers in general have yet come to terms with this declaration from quantum physics: the days of the Universe as Mechanism are over.’ Nowhere is that more true than in economics.

McLuhan wasn't an Economist. He was an expert on G.K Chesterton- an anti-semite of the Soddy type. The recent financial crash did not result in any very great suffering comparable to the Great Depression. Some countries- like China and India have grown rapidly despite it. Others are still paying the price of political profligacy and corruption.