Inside Quantum Technology’s “Inside Scoop:” Quantum and Economics
With events such as the SVB Bank collapse or the Credit Suisse buyout, economics has recently been making headlines. This field is not for the faint-hearted. It combines areas of mathematics, computer science, finance, and even psychology to understand how economies function. Because of its multifaceted nature, economics may pose a perfect opportunity to test quantum computing’s capabilities. Some have even used the phrase “quantum economics” to highlight the importance of quantum computing in this field. Though quantum computing is still a nascent technology, many scholars believe it can heavily influence the future of economics, from currency fluctuation to predicting the next recession.
Improving Economic Models
In the 2022 paper Quantum Propensity in Economics, scholars from Imam Reza International University and Systems Forecasting in Toronto, Canada, discussed how quantum computing could improve economic models. There is a “need to develop a consistent quantum mathematical framework for economics,” the researchers highlight. Neoclassical economics is built on the theory of expected utility, which combines a probability theory for uncertain situations with a basic utility theory for people’s preferences. While this economic model works for a thought experiment, it can be challenging to apply to real use cases, as people’s tastes change or they don’t utilize probability theory to make monetary decisions.
Quantum Propensity in Economics points out these disparities further by highlighting that the economic collapses of 2007 and 2008 made these models even more inaccurate, showcasing the need for a new modeling system. “The quantum approach…is inherently probabilistic and deterministic,” the scholars write. “For the case of economics, the quantum approach, with its change from utility to propensity, leads to a shift in our understanding of how decisions are made and how financial transactions are modeled.”
Predicting Human Behavior
Economic fluctuations, such as inflation or recessions, are hard to model because we have to predict human behavior. As Dr. Sam Mugel, the CTO of Multiverse Computing, explains in a 2022 Forbes article, economic dynamics are constantly evolving, and part of these fluctuations have to do with irrational behaviors from individuals (such as runs on banks). Because of the irrationality in this process, it is extremely difficult for a classical economic model to explain all the fluctuations and changes in an economy. Instead, Mugel and other experts have proposed quantum computing models to help address this fast-changing and unpredictable system. Mugel and the Multiverse Computing team are one of the first to suggest a proof-of-concept quantum computing simulation for an evolving economic network. The company collaborated with the Bank of Canada to produce this simulation, which simultaneously modeled the adoption of cryptocurrency payments by up to 10 companies. This simulation is just the beginning of how quantum computing could address economic models and suggests that much more is needed to realize this technology’s potential.
The Economics of Currency
Quantum computing can help to model different economic networks accurately, but it also does well when looking at currency. This technology “applies particularly well to money, whose function is to collapse the fuzzy concept of value down to a number in a manner that can be modeled as a form of wave function collapse,” explains Quantum Propensity in Economics. With changes in currency value, quantum computing can give more accurate appraisals of different properties or items worldwide, helping to stabilize markets better. The 2020 manuscript Quantum Computing for Economists expands on this idea. The international group of researchers elaborates that quantum computing gives extra security to financial transactions without needing a third party, boosting privacy for buyers and sellers. They use the term “quantum money” to describe this new anonymous and secure type of currency, suggesting that it could change the future of economics and how money exchange can be modeled in real-time.
Though it will be some time before quantum computing can be directly applied to different economic networks, several other projects are already underway to show how this next-generation technology may create a future paradigm shift in this field.
Kenna Hughes-Castleberry is a staff writer at Inside Quantum Technology and the Science Communicator at JILA (a partnership between the University of Colorado Boulder and NIST). Her writing beats include deep tech, the metaverse, and quantum technology.
