I continue to think Victor and Laurel’s most singular and brilliant insight is that the market is a system that maximizes entropy; entropy taking the form of the leakage, vig, to the institutional framers of the market system. Given that the physical modeling of financial processes has become the fete du jour in economics, I thought I could suggest a couple working papers for reading over the holiday and that we could then come back as a group after New Years and tackle this likely productive field collectively.

The first two papers, found here and here, are on the structure of order flow, not entropy per se. The third is the landmark paper on utility theory and thermodynamics. All from Santa Fe and most in the vein of the Horse Trader and my former professor, Martin Shubik.


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