Decision engineering: Thermodynamics and the Entropy Decision Risk Model Utility (EDRM-U)

Thomas J. Monroe, Mario G. Beruvides

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

The Entropy Decision Risk Model Utility (EDRM-U) has shown accurate predictability for situations of uncertain economic decisions. The model is based on statistical mechanics micro-state entropy divergence to define subjective probability and its relationship with objective probability. The model thus bridges the gap between how individuals make risk decisions under conditions of expected traditional approaches and how they actually do. Boltzmann used these same principles to show that statistical mechanics entropy is commensurate with thermodynamic entropy when in “equilibrium” and every micro-state is equally probable. Likewise, a homological connection can be established between individual choices (subjective probabilities, micro-states) and choices at the economic level (objective probabilities, macro-states), permitting the modeling of behavioral economic decisions using established thermodynamic principles. This approach differs significantly from prior research into the field of thermo-economics, revealing new ways to engineer economic systems.

Original languageEnglish
Title of host publicationIISE Annual Conference and Expo 2021
EditorsA. Ghate, K. Krishnaiyer, K. Paynabar
PublisherInstitute of Industrial and Systems Engineers, IISE
Pages674-679
Number of pages6
ISBN (Electronic)9781713838470
StatePublished - 2021
EventIISE Annual Conference and Expo 2021 - Virtual, Online
Duration: May 22 2021May 25 2021

Publication series

NameIISE Annual Conference and Expo 2021

Conference

ConferenceIISE Annual Conference and Expo 2021
CityVirtual, Online
Period05/22/2105/25/21

Keywords

  • Entropy
  • Internal energy
  • Prospect utility
  • Proximity
  • Subjective probability

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