The Color of Money: Threshold Effects in Quantum Economics

Abstract

Many cognitive phenomena of the sort studied by behavioral psychologists show evidence of a threshold effect, where a certain minimum impulse is required in order to produce a change. An example is the phenomenon of preference reversal, where a change in context affects a decision, but only if the effect on perceived utility is sufficiently large. Similar threshold effects play a role in the endowment effect, where the change of context from owning to buying something induces a step change in its perceived value, or the ultimatum game, where people demand a certain minimum threshold amount before a deal can be accepted. The situation is similar to the photoelectric experiment in physics, where a minimum threshold of energy from a photon is required in order to dislodge an electron from an atom. In physics, this quantum of energy is written as the product of Planck’s constant and frequency. This paper uses the concept of entropic force to derive a similar expression for quantum economics. The theory is applied to a range of cognitive and economic phenomena exhibiting a threshold effect.