The Golden Ratio in Economics - 2
This complements the theme of the Golden Ratio in economics - what is it? ”Raised in a previous publication . Let us approach the problem of the preferred allocation of resources from the side that has not yet been addressed.
Let’s take the simplest model of event generation: tossing a coin and the probability of a eagle ’or tails’ falling out. It is postulated that:
The loss of an “eagle” or “tails” with each individual throw is equally probable - 50 to 50%
With a large series of throws, the number of drops on each side of the coin approaches the number of drops on the other.
This means that, writing down the results of previous “eagle” losses and focusing on the series equilibrium, we can expect the “eagle” (and “tails” not to fall out) as the next element of the series with a greater or lesser probability - depending on the results of previous losses. Which is consistent with the experience of everyone who conducted such a series.
According to statistics (to avoid repetition, see examples of graphs in the publication ), in various economic systems - as in experiments with a coin - there is a certain regular probability distribution of costs. And it is extremely interesting to present this empirical distribution of expenses as a Lorentz diagram (see the illustration below in “Company expenses”). With some insignificant errors of its approximation, this curve turns into an arc of a circle (lower right quarter). An extensive statistical analysis of the distribution of resources indicates a high reproducibility of the circular arc in different areas of the economy (again, see the previous publication). And the degree to which the existing distribution of costs is close to this reference allows us to judge the “health” of the economic system under consideration. “Health” here refers to the survival of the system and its ability to develop.
Consider two segments of economic activity, which are basically similar, but each one has a certain specificity.
The Russian program Leonarus v.1.02 implements the approach stated above (see www.leonarus.ru/?p=1368 ) evaluates the costs from the point of view of the sustainability of the development of the economic entity as an integrated system. She does this through an assessment of the distribution of costs and ensures the best use of available resources, warning against sharp deviations from the optimum of the system.
Spending that corresponds to this pattern provides the maximum freedom of the existing system and its maximum survivability.
The program is quite accessible to a user familiar with Excel and who has some experience in planning and business activity. The program allows you to evaluate the economic condition of the enterprise and make adjustments to the planned budget based on the current situation.
The relevance of assessing the current economic condition is growing today, as the bankruptcy of legal entities is becoming an increasingly frequent occurrence.
In 2017, more than 9 thousand entrepreneurs ceased to exist. Small business bankruptcy statistics note that approximately 30% closed due to bankruptcy.
Bankruptcy statistics for enterprises in 2017 also increased. Over 13.5 thousand companies went bankrupt in Russia. The increase was 7.7%. In the first quarter of 2018, 3.17 thousand enterprises were declared insolvent. The increase was 5%.
The Leonarus v.1.02 program is good in that it allows you to adjust the estimated costs, justifying a decrease / increase in costs depending on the desired result: achieving the planned profitability. In enterprises approaching the preferred Lorentz chart with a power of two in terms of cost structure, profitability is highest (Bueva, T. M. (2002). The use of modified Lorentz curves in distribution problems).
As a note : the program on its premises could be very useful not only for business, but also for households. For example, providing a house with food, some special delicacies are bought, food for cooking is simpler, cereals, seasonings, small household chemicals are picked up on trifles ... It turns out a picture that most likely occurs in most cases.
And if your expenses are described by the preferred Lorenz diagram, then the life of your home is financially safe. Any spending that fits into this chart - no matter how extravagant they are - will not blow your budget.
The program could help even an experienced housewife with a sharp budget cut. And in normal mode, it is needed to verify already planned expenses. This is insurance that allows you to avoid blunders, accidental disruptions in the distribution of money.
At the same time - alas, I have to admit that in its current form the program is a layout and is practically inaccessible to inexperienced users. A useful tool for domestic use has not yet been adapted ... Any tips and suggestions for "landing" Leonarus v.1.02 are welcome.
This is a case of expert assessment, when it is not about changing costs, but about clarifying the risks of the project. This is done when, in addition to the methods already used to evaluate the proposed investment, the cost structure is analyzed for proximity to the Lorentz reference chart.
The available experience is insufficient for final conclusions in this regard. However, based on the theoretical premises and experience of the site www.leonarus.ru , it can be suggested that the greater the deviation of project costs from the reference arc to the left, the greater the danger of unforeseen events due to some initial “loose” plans. And the stronger the deviation to the right, the greater the likelihood that the planner / project manager tends to over-regulate and the project does not have sufficient adaptive capacity to meet the challenges that he will face.
These assumptions are clarified when considering the average cost of the project using the equations of quantum mechanics. But even without additional calculations, deviations from the reference chart can affect a sound investment decision. Either the project will be rejected due to increased risk, or the structure of the transaction should take into account the increased risk of the project.
The simplest economic system is in fact a system with high uncertainty due to the diversity of its components and variable relationships between them. The structure of estimated or current expenses is not the only critical component of the system. However, it is one of those that can be adjusted by managers. And with all the differences in the conditions under which economic activity proceeds, we can assume that the optimal (from the point of view of survival and development of the economic entity) resource allocation is described by the Lorentz reference diagram. It may well be called the "golden ratio" in the economy and be extremely useful in economic planning and analysis.
"I have always been convinced that in preparing for battle, plans are futile, but planning is priceless."
D. Eisenhower, commander of the Allied forces in Europe (1944-1945)
To complete the picture:
Let’s take the simplest model of event generation: tossing a coin and the probability of a eagle ’or tails’ falling out. It is postulated that:
The loss of an “eagle” or “tails” with each individual throw is equally probable - 50 to 50%
With a large series of throws, the number of drops on each side of the coin approaches the number of drops on the other.
This means that, writing down the results of previous “eagle” losses and focusing on the series equilibrium, we can expect the “eagle” (and “tails” not to fall out) as the next element of the series with a greater or lesser probability - depending on the results of previous losses. Which is consistent with the experience of everyone who conducted such a series.
According to statistics (to avoid repetition, see examples of graphs in the publication ), in various economic systems - as in experiments with a coin - there is a certain regular probability distribution of costs. And it is extremely interesting to present this empirical distribution of expenses as a Lorentz diagram (see the illustration below in “Company expenses”). With some insignificant errors of its approximation, this curve turns into an arc of a circle (lower right quarter). An extensive statistical analysis of the distribution of resources indicates a high reproducibility of the circular arc in different areas of the economy (again, see the previous publication). And the degree to which the existing distribution of costs is close to this reference allows us to judge the “health” of the economic system under consideration. “Health” here refers to the survival of the system and its ability to develop.
Consider two segments of economic activity, which are basically similar, but each one has a certain specificity.
Company expenses
The Russian program Leonarus v.1.02 implements the approach stated above (see www.leonarus.ru/?p=1368 ) evaluates the costs from the point of view of the sustainability of the development of the economic entity as an integrated system. She does this through an assessment of the distribution of costs and ensures the best use of available resources, warning against sharp deviations from the optimum of the system.
Spending that corresponds to this pattern provides the maximum freedom of the existing system and its maximum survivability.
The program is quite accessible to a user familiar with Excel and who has some experience in planning and business activity. The program allows you to evaluate the economic condition of the enterprise and make adjustments to the planned budget based on the current situation.
The relevance of assessing the current economic condition is growing today, as the bankruptcy of legal entities is becoming an increasingly frequent occurrence.
In 2017, more than 9 thousand entrepreneurs ceased to exist. Small business bankruptcy statistics note that approximately 30% closed due to bankruptcy.
Bankruptcy statistics for enterprises in 2017 also increased. Over 13.5 thousand companies went bankrupt in Russia. The increase was 7.7%. In the first quarter of 2018, 3.17 thousand enterprises were declared insolvent. The increase was 5%.
The Leonarus v.1.02 program is good in that it allows you to adjust the estimated costs, justifying a decrease / increase in costs depending on the desired result: achieving the planned profitability. In enterprises approaching the preferred Lorentz chart with a power of two in terms of cost structure, profitability is highest (Bueva, T. M. (2002). The use of modified Lorentz curves in distribution problems).
As a note : the program on its premises could be very useful not only for business, but also for households. For example, providing a house with food, some special delicacies are bought, food for cooking is simpler, cereals, seasonings, small household chemicals are picked up on trifles ... It turns out a picture that most likely occurs in most cases.
And if your expenses are described by the preferred Lorenz diagram, then the life of your home is financially safe. Any spending that fits into this chart - no matter how extravagant they are - will not blow your budget.
The program could help even an experienced housewife with a sharp budget cut. And in normal mode, it is needed to verify already planned expenses. This is insurance that allows you to avoid blunders, accidental disruptions in the distribution of money.
At the same time - alas, I have to admit that in its current form the program is a layout and is practically inaccessible to inexperienced users. A useful tool for domestic use has not yet been adapted ... Any tips and suggestions for "landing" Leonarus v.1.02 are welcome.
Investment project analysis
This is a case of expert assessment, when it is not about changing costs, but about clarifying the risks of the project. This is done when, in addition to the methods already used to evaluate the proposed investment, the cost structure is analyzed for proximity to the Lorentz reference chart.
The available experience is insufficient for final conclusions in this regard. However, based on the theoretical premises and experience of the site www.leonarus.ru , it can be suggested that the greater the deviation of project costs from the reference arc to the left, the greater the danger of unforeseen events due to some initial “loose” plans. And the stronger the deviation to the right, the greater the likelihood that the planner / project manager tends to over-regulate and the project does not have sufficient adaptive capacity to meet the challenges that he will face.
These assumptions are clarified when considering the average cost of the project using the equations of quantum mechanics. But even without additional calculations, deviations from the reference chart can affect a sound investment decision. Either the project will be rejected due to increased risk, or the structure of the transaction should take into account the increased risk of the project.
Finally
The simplest economic system is in fact a system with high uncertainty due to the diversity of its components and variable relationships between them. The structure of estimated or current expenses is not the only critical component of the system. However, it is one of those that can be adjusted by managers. And with all the differences in the conditions under which economic activity proceeds, we can assume that the optimal (from the point of view of survival and development of the economic entity) resource allocation is described by the Lorentz reference diagram. It may well be called the "golden ratio" in the economy and be extremely useful in economic planning and analysis.
"I have always been convinced that in preparing for battle, plans are futile, but planning is priceless."
D. Eisenhower, commander of the Allied forces in Europe (1944-1945)
To complete the picture:
References to which the authors link http://www.leonarus.ru
Antoniou, I., Ivanov, VV, Korolev, YL, Kryanev, AV, Matokhin, VV, & Suchaneckia, Z. (2002). Analysis of resources distribution in economics based on entropy. Physica A, 304, 525-534.
Haritonov, VV, Kryanev, AV, & Matokhin, VV (2008). The adaptable potential of economic systems. International Journal of Nuclear Governance, Economy and Ecology, 2, 131-145.
Lorentz, MO (Jun 1905). Methods of Measuring the Concentration of Wealth. Publications of the American Statistical Association, 9 (70), pp. 209-219.
Mintzberg, H. (1973). The Nature of Managerial Work. New York: Harper & Row.
Prigogine, IR (1962). Non-equilibrium statistical mechanics. New York - London: Interscience Publishers a Division of John Wiley & Sons.
Rasche, RH, Gaffney, J., Koo, AY, & Obst, N. (1980). Functional forms for estimating the Lorenz curve. Econometrica, 48, 1061-1062.
Robbins, L. (1969 [1935]). An Essay on the Nature and Significance of Economic Science (2nd edition ed.). London: Macmillan.
Alla, M. (1995). Economics as a science. (I. A. Per. From the French Egorov, Perev.) M: RGGU.
Alla, M. (1998). Equivalence theorem.
Bueva, T.M. (2002). The use of modified Lorentz curves in the distribution of funds. Yoshkar-Ola.
Doroshenko, M.E. (2000). Analysis of nonequilibrium states and processes in macroeconomic models. M: Faculty of Economics, Moscow State University, TEIS.
Kotlyar, F. (1989). The basics of marketing. (/. p. English., Trans.) Moscow: Progress.
Kryanev, A.V., Matokhin, V.V., & Klimanov, S.G. (1998). Statistical functions of resource allocation in the economy. M: MEPhI preprint.
Prigogine, I.R. (1964). Nonequilibrium statistical mechanics. (P. p. English, Perev.) Moscow: World.
Suvorov, A.V. (2014). The science of winning. (M. Tereshina, Ed.) M: Eksmo.
Helfert, E. (1996). Technique of financial analysis / Per. from English (L.P. Belykh, Perev.) M: Audit, UNITY.
Haritonov, VV, Kryanev, AV, & Matokhin, VV (2008). The adaptable potential of economic systems. International Journal of Nuclear Governance, Economy and Ecology, 2, 131-145.
Lorentz, MO (Jun 1905). Methods of Measuring the Concentration of Wealth. Publications of the American Statistical Association, 9 (70), pp. 209-219.
Mintzberg, H. (1973). The Nature of Managerial Work. New York: Harper & Row.
Prigogine, IR (1962). Non-equilibrium statistical mechanics. New York - London: Interscience Publishers a Division of John Wiley & Sons.
Rasche, RH, Gaffney, J., Koo, AY, & Obst, N. (1980). Functional forms for estimating the Lorenz curve. Econometrica, 48, 1061-1062.
Robbins, L. (1969 [1935]). An Essay on the Nature and Significance of Economic Science (2nd edition ed.). London: Macmillan.
Alla, M. (1995). Economics as a science. (I. A. Per. From the French Egorov, Perev.) M: RGGU.
Alla, M. (1998). Equivalence theorem.
Bueva, T.M. (2002). The use of modified Lorentz curves in the distribution of funds. Yoshkar-Ola.
Doroshenko, M.E. (2000). Analysis of nonequilibrium states and processes in macroeconomic models. M: Faculty of Economics, Moscow State University, TEIS.
Kotlyar, F. (1989). The basics of marketing. (/. p. English., Trans.) Moscow: Progress.
Kryanev, A.V., Matokhin, V.V., & Klimanov, S.G. (1998). Statistical functions of resource allocation in the economy. M: MEPhI preprint.
Prigogine, I.R. (1964). Nonequilibrium statistical mechanics. (P. p. English, Perev.) Moscow: World.
Suvorov, A.V. (2014). The science of winning. (M. Tereshina, Ed.) M: Eksmo.
Helfert, E. (1996). Technique of financial analysis / Per. from English (L.P. Belykh, Perev.) M: Audit, UNITY.
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