This deal with spike trains and entropy

Markets, how we perceive them, is based on how often, how much. What tunes the brain is that the how often, how much, generates maximum entropy spike trains. This is the coincidence detector method of perception. The brain, ultimately, likes to generate in sync coincidence detectors. Up to eight in depth, I hear. There is no variance minimizers in the brain.

We go through life and normally, we plan for 1 out of 9 failures. And much outside of that boundary, the spike trains become way out of sync.
This is important for markets: If a supply chain is inflating, we know the maximum entropy estimate for its yield curve, and this gives us the finite (N+1) set of transaction rates and lot sizes.

So, a company like Wal Mart may want to inflate. Its goal is to expand its supply chain such that all parties, from customers to manufacturing, will use the N+1 set of lot size and rates. Each participant human being in the chain will end up with a spike train that can't find a specific inventory 1 out of 9 times.

Looking at the entire Wal Mart chain, each transaction will deliver the same amount of novelty in the exchange, 1/9 being the basic unit of economic information.

What this means to macro is that we actually measure distributions in our heads to the eighth dimension. So consumers got the change in distribution from the oil peak, they deflated because they knew the maximum entropy relations between driving and walking to the store; car pooling, hiring a gardener; all these have a relations ship, they come together and fire the coincidence detectors. When we deflate, we know pretty much how to do it in short order.

This can happen up and down the supply chain, deflation faster than inflation, because we are going back to the past, to known maximum entropy relations.

The related topic is the stock market. In information theory, the EMH says that if given the minimum variance yield curve, then for any given N, maximum entropy can give the optimum Vol time rate allocations for each of N trade terms. The hedge fund manager looks for trade patterns that are out of one of the terms, and tries a counter trade to generate a known, more maximum entropy in the market. Converting to price, the trader wants to add market precision where he sees insufficient price variation allocated to adjacent terms in the monetary yield curve. When the curve is steep, he wants to intermediate and add price variation.