Molecular Economics

Macroeconomics attempts to write down general rules about the economic system as a whole. Microeconomics studies how individuals make decisions. We propose to observe and describe the basic building blocks in markets. This approach may be called molecular economics.

Classical economics are based on unrealistic assumptions. If these assumptions hold, even if approximately, then many branches of computer science are not worth studying. If we get rid of all those assumptions, all the economics text books must be rewritten. But how?

One way to rebuild the foundation is by observing and describing the building blocks in the market, and how they interact with each other. This means describing anything that affects the operation of the market, which may include:

• Every buy and sell order;
• The rules for processing the orders;
• The traders' positions, i.e. what they have bought or sold for;
• Each trader's margin, i.e. how much the traders owe the brokers;
• etc.

Observation and description was how biologists started their discipline. No serious assumptions are required for observation and description. Neither is forecasting involved. One piece of research along this line is to describe the building blocks of the market with a calculus (see paper, demo and video for details). Once the relationship between these building blocks are written, their properties can be studied rigorously.

Orders and trader positions are basic building blocks, i.e. molecules of the market. Therefore, this approach may be termed molecular economics.