COMM 421

Portfolio Theory & Management

 

 

Term Paper

 

"Nuclear theory of value:

(A discussion paper)"

 

By

 

 

Donald C Rorke

Michael Dunn

 

 

 

 

 

Due: April 1, 2003

 

University of Northern British Columbia

Nuclear Theory of Value :( A discussion paper)

 

Entropy Theory with regards to the value of information assumes that all information has value.  However, if we look at this assumption intuitively, we can see that all information is universally available but has not necessarily been discovered yet.  As such, I would argue that information has no value to begin with and only develops value as we try to work with it.  With this understanding, we can say that the Entropy Theory only explains 60 to 70 % of the value after the value has been generated.

 

To find an explanatory model for the development of value, we must look to Nuclear Physics.  Specifically, I would propose that we look at a system of equations dealing with nuclear decay and an event horizon which explains the other 30 - 40 % of the value.  I would caution at this time that we are neither mathematicians nor nuclear physicists so these equations are offered without proof.

 

1.;, describes the energy profile of the decaying state.

 

2.;, describes the controlled reaction to the total of all inputs.

 

3.;, describes the decline in value as more time evolves. (Entropy Theory).

 

Description of terms:

o       E = energy

o       E_i = incident energy

o       E_f = released energy

o       E_R = peak energy

o       E₀ = lost energy (leakage)

o       Cos θ = control function (angular momentum)

o       m_d = initial probability estimate

o       m_p = adjusted probability estimate

o       m* = equivocation

o       τ = lifetime

o       i = importance

 

Note: the expression E can equated with value (costs)

 

 

 

The results of this system of equations can be demonstrated through a series of graphs which illustrate three possible outcomes to the discovery of the information.  In the first scenario, analysis (which involves costs) deems the information to be of low potential value.  In the second scenario, the information is deemed valuable but there is a poor level of control on utilizing it which results in a fizzle.  The last scenario depicts valuable information that is properly utilized to derive maximum value.  In each case, the value is that derived by an individual over time.

 

 

 

 

 

Conclusion:

 

Although this is offered without proof, we feel that further testing of this theory will demonstrate the asymmetric value derived from information to a fuller extent than simply using the Entropy Theory.  As such, it demonstrates that information can have a different derived value for each individual, dependent on their level of critical knowledge and experience.  This leads to the conclusion that markets cannot be efficient due to the asymmetry of information among investors.

 

 

 

 

                                                                                                                                   

 

References:

[1]   Cottingham, W.N., Greenwood, D.A.; "An introduction to nuclear physics"; Cambridge University Press 1986; Cambridge

[2]   Cole, A.J.; "Statistical Models for Nuclear Decay: from evaporation to vaporization"; IOP Publishing Ltd. 2000; Bristol