Sunday, July 5, 2009

On Markets and Minds

Markets are information processing mechanisms. Humans ("agents") gather information about the environment and bring it into a forum where their information can be expressed. The form of expression is simple: supply and demand. Agents from some areas will demand certain things, and this is a reflection of the state of the environment in that area. The same goes for supply. Thus, information about the environment is filtered through the needs of the agents and transmitted to other agents, many of whom will never interact directly.

The compression of all possible information into two attributes is interesting by itself. It like a double-binary (quaternary?) code: the existence or absence of two things. I suppose it could be compressed to binary, since an agent can't have both a supply and a demand (of the same object) at the same time. Or perhaps a special case of ternary (base three) with the values -1, 0, and 1 ? Or is that still binary with "two's compliment"?

Memories as Stable Patterns

In neurons, memories are stored by establishing a network of cells that are sensitive to each other's firing, such that when a certain stimulus occurs they will fire in the same pattern. Memories are maintained by keeping the firing pattern active until the connections are strong enough that they will not fade. In other words, the stimulus is re-experienced internally -the memory is replayed after the event- until long-term potentiation establishes the heightened sensitivity.

Can I connect this with the market framework? When a demand is present in enough strength, supply agents will find and satisfy it. When it is persistent, supply agents will build infrastructure that allows them to satisfy the demand at a lower cost. Once the infrastructure is in place, the same patterns of supply and demand will persist until the agents get old and die or the system is shocked. Thus, we have stable patterns of activation in the economic network that reflect the perceived state of the external world. In other words: intentionality.

Can inhibitory neurons be compared to selling agents, and excititory neurons compared to demand agents?