Ten years ago I published the small book “Physical Modeling of Economic Systems: The Classical and Quantum Economies” [4]. It was my first attempt to develop an economic theory ab initio, and constructed an axiomatic basis of the theory from a limited set of first principles. The basic hallmarks of the theory that made it probabilistic and quantitative are as follows.
First. A careful, step-by-step development of the market agent-based physical economic models, where market agents play a main role in market phenomena.
Second. The complete integration of uncertainty and probability perspectives throughout the theory.
Third. A unifying, analytic framework that uses equations of motion in the formal price economic space to describe economy evolution in time.
For the last ten years, I have continually strived to advance the theory and to make it more clear and justified. In particular, for this purpose I developed the special mathematical apparatus, which is referred to in the book as probability economics. Still, I considerably advanced the theory by means of taking into consideration quantities of market goods as independent variables along with their prices. Due to this innovation, the economic price space was expanded up to the economic price-quantity space. During this time I also developed mathematical apparatus for describing the many-good, many-agent market economies. Despite the fact that achievements and expansions of theory mentioned above are very substantial, my new book carries the title “Probabilistic Economic Theory” and is, in essence, the second extended edition of my first book, in which I presented only very beginnings of the method of the agent-based physical modeling of economic systems and the basics of probabilistic economic theory.
In this book, the fundamental concepts of economic theory are exposed to critical rethinking for the purpose of answering such eternal questions of economic theory such as those regarding supply and demand, as well as market price and market force, market process and market equilibrium, invisible hand of market etc. I look at how all these concepts should be incorporated into economic theory and conveyed quantitatively in the same language in which physicists, chemists and other professionals in the so-called natural sciences present their theories, i.e., in the language of mathematics. In the book I presented maximally simplified models, in which only the most important special features and details of work of markets are described by means of maximally simplified mathematical apparatus. Let us stress here that the main aim of such basic models is only to reveal the essence of the studied phenomenon, not more. After this is accomplished, we can then develop the models further, including other, more sophisticated effects within them. This is the only true way of modeling science. Therefore, Chapters I–VIII are easily understood by first-year economics students. But the subsequent Chapters IX and X require an existing, thorough knowledge of physics, somewhere around the level of upper year physics courses. They only need have the slightest grasp of economic phenomena and laws of human action in the market economy, obtained, for example, in the course of reading the first chapters of this book. Generally, this book can be considered as an introduction into economics, written for physicists in standard physics terminology. The book, by the way, was initially taught as a set of lectures on economics for physics department students. If, after reading this book, a physics student has the impression that the presented physical economic models are quite simple and understandable, then I have solved a personal challenge. Indeed, I feel that the more complex the studied systems are and the phenomena within them, the simpler the model must be, taking into consideration only those effects which are of prime importance for describing the studied phenomena.