The Maxwell Demon and Market Efficiency
arXiv.org, Quantitative Finance Papers 01/2003;
Source: RePEc
ABSTRACT This paper addresses two seemingly unrelated problems, (a) What is the entropy and energy accounting in the Maxwell Demon problem? and (b) How can the efficiency of markets be measured? Here we show, in a simple model for the Maxwell Demon, the entropy of the universe increases by an amount eta=0.839995520 in going from a random state to an ordered state and by an amount eta*=2.731382 in going from one sorted state to another sorted state. We calculate the efficiency of an engine driven by the Maxwell sorting process. The efficiency depends only on the temperatures of the particles and of the computer the Demon uses to sort the particles. We also show the approach is general and create a simple model of a stock market in which the Limit Trader plays the role of the Maxwell Demon. We use this model to define and measure market efficiency.
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ABSTRACT: In this paper we examine the Maxwell Demon problem from an information theoretic and computational point-of-view. In particular we calculate the required capacity of a communication channel that transports information to and from the Demon. Equivalently, this is the number of bits required to store the information on a computer tape. We show that, in a simple model for the Maxwell Demon, the entropy of the universe increases by at least an amount eta=0.83999552 bits per particle in going from unsorted to sorted particles and by an amount eta*=2.37314 in going from one sorted state to another sorted state.
ABSTRACT: In this paper we examine the Maxwell Demon problem from an information theoretic and computational point-of-view. In particular we calculate the required capacity of a communication channel that transports information to and from the Demon. Equivalently, this is the number of bits required to store the information on a computer tape. We show that, in a simple model for the Maxwell Demon, the entropy of the universe increases by at least an amount eta=0.83999552 bits per particle in going from unsorted to sorted particles and by an amount eta*=2.37314 in going from one sorted state to another sorted state.
02/2004;
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