twofish-quant
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ApplePion said:Suppose I am a credit card company owner and I tell a customer that he owes me a thousand dollars. The customer says "If I give you 200 dollars I will only owe 800 dollars. Under those conditions it would no longer be 1,000 dollars. Me giving you 200 dollars and owing 800 is an equivalent situation as me owing 1000" So I say "OK that makes no difference in our situation, give me 200 dollars." Then he says, "But if I change it so that I give you 1,000 in cash and now had no debt we would be in an equivalent situation to me owing you 1,000 dollars. Therefore since I can make the debt vanish by an equivalence transformation, the debt does not have real meaning".
This doesn't work. In most common situations, wealth has scaling symmetry but not translational symmetry. I.e. if you have an economic situation, you can describe that situation equivalently by multiplying it by a scaling factor (i.e. do all your calculations in euros rather than dollars). Economics is not translationally symmetric. (I.e. if you add a constant amount to an economic situation, you are describing a different situation).
This has a number of implications
1) the important quantities are log-price rather than price
2) debt and credits are invariant quantities. If A is in debt to B, we can describe the amount of debt equivalently in dollars and euros, but we cannot by a change of coordinates eliminate the debt
A lot of the equations of finance can be derived from gauge theory.