ProActive Algorithms: An Approach to Market Stability and Wealth Distribution by Sharing Future Profits
Economic theory uses negative feedback control in competitive markets to control the production and price of goods and services. ProActive algorithms combine negative feedback with systematic feedforward business planning and the collaboration of consumers in setting prices.
Economic modelling assumes businesses adjust their prices and products according to what the market tells them. Unfortunately, that is not the way businesses operate. Successful businesses proactively calculate how much they can charge customers and set the price accordingly. Their emphasis is selling the most goods and services for the most money. On the consumer side, consumers rationally choose suppliers that give them the most value for the least cost. A free market is the mechanism to set the price and, with it, production.
In a modern economy, the world of markets, as described above, does not exist. Successful businesses do not see themselves in conflict with their customers. They know the importance of brands and trust and want customers to trust them. They compete with other firms on price.
Economic modelling and policies that reflect a business seeking to exploit customers and get them to pay extra turn out to be expensive to operate as it reduces trust. Building models based solely on competitive markets may give some insights, but if it predicts the future, it is by chance. Economic modelling needs to include the feed-forward influence of economic agents. ProActive Algorithms adds free-forward controls for customers and businesses to collaborate on prices while keeping choices for consumers.
Agent-based modelling is a tool for economic modelling that can incorporate feed-forward control and is used to design and model the deployment of ProActive Systems.
ProActive Algorithms
Instead of buyers in a market trying to get the lowest price and sellers the highest price, we create markets where buyers and sellers work together to get the lowest cost and best value goods and services.
With proactive algorithms, suppliers collaborate with consumers on how much profit is reasonable. The buyer pays the entire profit but shares the profit on future sales. This is a feedforward sharing of profits with which both parties agree, and it controls prices.
With proactive algorithms, an oversupply of goods will drop prices, and a higher share of the same profits goes to the consumers. If an undersupply exists, the prices increase, and the producers get a greater share of profits. This stabilises prices as producers and consumers want to decrease costs to increase profits when prices are stable.
With regular economics, the price is the only way to adjust profits, creating greater price variability and making a less stable, higher priced and, hence, less efficient economy. This is particularly the case with the money supply, where the central banks control the profit of producing new money. Banks can easily share profits with consumers by including a share of interest payments to reduce the value outstanding.
With proactive algorithms businesses work to keep customers in the economy and keep their own and the supply chain businesses healthy and operating. This approach keeps money circulating rapidly, keeping the total system functional and healthy.
Regular economics leads to a Zipf distribution of wealth and increased costs. In contrast, proactive algorithms of profit sharing leads to a Poisson distribution of wealth, reduced costs, and a more productive economy.
A proactive algorithm removes most of the cost of debt, as removing debt and replacing it with mutual obligation and trust is the simplest and quickest way to increase economic productivity. The other main productivity improvements come from allowing everyone to participate in the economy and speeding up the movement of money, goods and services.
A Short video titled A Simple Economy with Positive Feedback.
Read more at Sharing Profits with Consumers to Increase Productivity.
