Olkhov, Victor (2021): Theoretical Economics and the SecondOrder Economic Theory. What is it?

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Abstract
We consider economic agents, agent’s variables, agent’s trades and deals with other agents and agent’s expectations as ground for theoretical description of economic and financial processes. Macroeconomic and financial variables are composed by agent’s variables. In turn, sums of agent’s trade values or volumes determine evolution of agent’s variables. In conclusion, agent’s expectations govern agent’s trade decisions. We consider that trinity  agent’s variables, trades and expectations as simple bricks for theoretical description of economics. We note models that describe variables determined by sums of market trades during certain time interval Δ as the firstorder economic theories. Most current economic models belong to the firstorder economic theories. However, we show that these models are insufficient for adequate economic description. Trade decisions substantially depend on market price forecasting. We show that reasonable predictions of market price volatility equal descriptions of sums of squares of trade values and volumes during Δ. We call modeling variables composed by sums of squares of market trades as the secondorder economic theories. If forecast of price probability uses 3d price statistical moment and price skewness then it equals description of sums of 3d power of market trades – the thirdorder economic theory. Exact prediction of market price probability equals description of sums of nth power of market trades for all n. That limits accuracy of price probability forecasting and confines forecast validity of economic theories.
Item Type:  MPRA Paper 

Original Title:  Theoretical Economics and the SecondOrder Economic Theory. What is it? 
English Title:  Theoretical Economics and the SecondOrder Economic Theory. What is it? 
Language:  English 
Keywords:  theoretical economics; price probability; volatility; market trades; expectations 
Subjects:  A  General Economics and Teaching > A1  General Economics C  Mathematical and Quantitative Methods > C0  General E  Macroeconomics and Monetary Economics > E0  General E  Macroeconomics and Monetary Economics > E1  General Aggregative Models E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles G  Financial Economics > G0  General 
Item ID:  110893 
Depositing User:  Victor Olkhov 
Date Deposited:  02 Dec 2021 05:59 
Last Modified:  02 Dec 2021 05:59 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/110893 