Value and Information: A Profit Maximizing Strategy Lor Maxwell's Demon

Complexity, Vol. 1, No. 2, pp. 58-63, 1995

Posted: 3 Jan 2012

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Harold J. Morowitz

George Mason University

Date Written: January 31, 1995

Abstract

Applications of Lagrange's method of undetermined multipliers in physics and economics suggest some analogies between the two disciplines. Applying Jaynes' approach to information theory reveals the long standing problem of Maxwell's demon in thermodynamics as a constrained optimization problem where information and energy are dual concepts. Temperature emerges as the energetic price of information. This approach highlights the economic features of the Maxwell demon discussed by Bridgman. It also suggests that an analog to temperature (or the price of information) should be present in any optimization problem constrained by costly information. A trivial economics example is presented where generalized temperature measures informational efficiency in the sense of Grossman and Stiglitz.

Keywords: costly information, econophysics

JEL Classification: G14, A12, D8

Suggested Citation

Morck, Randall K. and Morowitz, Harold J., Value and Information: A Profit Maximizing Strategy Lor Maxwell's Demon (January 31, 1995). Complexity, Vol. 1, No. 2, pp. 58-63, 1995. Available at SSRN: https://ssrn.com/abstract=1978667

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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Singapore

Harold J. Morowitz

George Mason University ( email )

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Fairfax, VA 22030
United States

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