Hi everybody. Even though I have a great interest in economics, especially that of the Austrian school, as an undergrad student I am doing a degree in Theoretical Physics and am now in my 2nd year. I currently have a poster and website project that I am doing on Information theory. This is a very broad and interesting field that has applications in physics, artificial intellignece communications engineering, as well as in my opinion, inference.
Even though I will be focusing on the physical implications and foundations of information theory, I do hope to extend my poster to other areas, one of them Economics.
Now having read several pieces of Austrian literature, as well as so far the first 200 pages of Human Action, I am well accustomed with the Misesian stance toward the use of mathematics in economics, along the lines of the absence of constant relations as well as the emphasis on economic calculation as an appraisement problem.
This is also the reason I have been skeptical of the claims made by several mainstream economists who make claims about the use of information theory in economics.
In light of this, do you think there could be any real application of information theory or its concepts, toward the elucidation of economics, and te wrking of the real economy? Could it have any application toward explaining how resources are allocated in a capitalist economy, and how the capital structure is utilised and expanded? Is there any sound basis for the concept of prices as “signals”?
If you think this is worthwhile enough to investigate as part of my project, I would be very grateful if you could post links to sources and liteature with regard to this subject.
Thanks in advance
If you’re looking for information in economics, it usually shows up in microeconomics. Price theory and It’s Applications by Steven Landsburg has a really good discussion of signaling, moral hazard, and adverse selection by a libertarian author.
I don’t know of a good place to look for information theory (entropy, compression, channel coding) as it relates to economics, but David Mackay has a fantastic book available free online (http://www.inference.phy.cam.ac.uk/mackay/itila/book.html). His discussion of Bayesian inference is especially good.
In fact, having read MacKay’s book, it really annoys me how anti-mathematical, and anti-statistics the rhetoric of some Austrians is. Even though I think that the Austrian explanations tend to be the best, the force of the arguments could be stronger with a mathematical model. In addition, a quantitative model of the economy could be compared against the predications of other economic models to determine which model best fits the data. Of course a predictive model of the economy is a difficult thing to define, but I think that the anti-math rhetoric discourages academic Austrians from trying to generate good mathematical models.
Thanks for the reply, I actually have already downloaded Mackay’s book and hope to use it as part of my research. I’ll check outt he price theory book too if I can. Does anybody else have any more suggestions?
Hi again everybody. How relevant do you think information theory is to Hayekian notions of prices as “signals” of knowledge relating to the socialist calculation debate? Could it have some relevance on the distortion of these signals caused by interest rate manipulation producing business cycles?
With regard to interest rate manipulation, I usually treat it as a special case of price control theory.