Economic and Biological Evolution: A Real Option Approach

29 Pages Posted: 8 Aug 2001

See all articles by Jing Chen

Jing Chen

University of Northern British Columbia - School of Business

Date Written: June 2001

Abstract

Economic and biological systems, as open dissipative systems, need to extract negative entropy from the environment to compensate for continuous dissipation. This process can be modeled by lognormal processes, which in turn can be represented by the Black-Scholes equation and option theory. Since the Black-Scholes equation and all other thermodynamic equations are of first order in temporal dimension, economic and biological systems as thermodynamic systems are intrinsically evolutionary. With option theory as its analytical foundation, the non-equilibrium thermodynamic theory gives more accurate and simpler descriptions of economic activities than the Newtonian mechanics based general equilibrium theory.

Keywords: option theory, evolution, analytical framework, thermodynamic foundation of economics, non-equilibrium

JEL Classification: A10, B41, N30

Suggested Citation

Chen, Jing, Economic and Biological Evolution: A Real Option Approach (June 2001). Available at SSRN: https://ssrn.com/abstract=275609 or http://dx.doi.org/10.2139/ssrn.275609

Jing Chen (Contact Author)

University of Northern British Columbia - School of Business ( email )

Prince George, BC, V2N 4Z9
Canada
250-960-6480 (Phone)
250-960-5544 (Fax)

HOME PAGE: http://web.unbc.ca/~chenj/

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