---
# System prepended metadata

title: 'Quantifying decision-making uncertainty in the psychology of financial markets: The Gibbs energy connection with a theoretical investment choice involving a smart contract containing n distinct cryptocurrencies.'

---


# Quantifying decision-making uncertainty in the psychology of financial markets: The Gibbs energy connection with a theoretical investment choice involving a smart contract containing n distinct cryptocurrencies.

In order to incorporate the smart contract accumulator logic into a long mathematical formula, we can use the following notation:

- Let ```A```  be the accumulator value of the smart contract.
- Let ```x_i``` be the value of the ith cryptocurrency in the portfolio.
- Let ```p_i``` be the proportion of the portfolio invested in the ith cryptocurrency.
- Let ```r_i``` be the rate of return for the ith cryptocurrency.
- Let ```n```  the total number of cryptocurrencies in the portfolio.

With this notation, the accumulator value of the smart contract can be calculated as:

``` A = (1 + r1 * p1) * (1 + r2 * p2) * … * (1 + rn * pn) * x_1```

This formula calculates the value of the smart contract after one period of investment, assuming that the portfolio is rebalanced at the end of each period to maintain the target proportions for each cryptocurrency.

To extend this formula to multiple periods of investment, we can use the following formula:

```An = (1 + r1 * p1) * (1 + r2 * p2) * … * (1 + rn * pn) * A(n-1)```

This formula calculates the value of the smart contract after n periods of investment, assuming that the portfolio is rebalanced at the end of each period.

To incorporate the accumulator logic into the Gibbs energy formula, we can use the following formula:

```ΔG = ΔH - TΔS - (1 + r1 * p1) * (1 + r2 * p2) * … * (1 + rn * pn) * x_1```

This formula calculates the change in Gibbs energy associated with a hypothetical investment decision involving a smart contract holding n different cryptocurrencies, assuming that the portfolio is rebalanced at the end of each period to maintain the target proportions for each cryptocurrency. The formula takes into account the total value of the investment```(ΔH)```, the level of risk or uncertainty associated with the investment ```(ΔS)```, and the returns and proportions of each cryptocurrency in the portfolio ```(r_i and p_i)```.

****

**Model extension:**

Let's say we have a smart contract that holds 8 different cryptocurrencies, each with its own value and level of volatility. We can use the Gibbs energy formula to calculate the change in energy associated with a particular investment decision:


```ΔG = ΔH - TΔS```


where:

```ΔG = change in Gibbs energy
ΔH = change in enthalpy (total value of the investment)
T = temperature of the system (overall level of economic activity or market conditions)
ΔS = change in entropy (level of risk or uncertainty associated with the investment)
```

For simplicity, let's assume that the total value of the investment is $100,000, and the level of risk associated with the investment is 0.5. We'll also assume that the temperature of the system is 1.


To calculate the change in Gibbs energy, we can use the formula:


```ΔG = $100,000 - (1 * 0.5) = $99,999.5```


This calculation tells us that the change in energy associated with this investment decision is a decrease of $0.5 in Gibbs energy. This means that the investment decision is slightly less favorable, as there is a small decrease in energy associated with it.


Of course, in practice, the calculations involved in an AM smart contract would be much more complex, as there are many different factors that can impact the value and risk of an investment. However, the basic principles of the Gibbs energy formula can still be useful in guiding investment decisions and understanding the energy costs and benefits associated with different options.

****


Let ```S``` be the set of 8 cryptocurrencies held by the smart contract, and let ```Vi``` be the value of the ith cryptocurrency in ```S```. Let ```wi``` be the weight of the ith cryptocurrency in ```S```, such that ```0 <= wi <= 1 and the sum of wi for all i in S is equal to 1```. Let ```Q``` be the total amount of cryptocurrency held by the smart contract. Let ```P``` be the current market price of each cryptocurrency in ```S```. Let ```R``` be the risk factor associated with the investment.




Then, the overall value of the smart contract, denoted by ```C```, can be expressed as:




```C = w1 * V1 * Q1 / P1 + w2 * V2 * Q2 / P2 + … + wn * Vn * Qn / Pn```




where ```n``` = 8, and  ```Q1``` through ```Qn``` are the amounts of each cryptocurrency held by the smart contract.




The risk associated with the investment can be expressed as:




```R = 1 - exp(-λ * (w1 * ln(w1) + w2 * ln(w2) + … + wn * ln(wn)))```




where ```λ``` is a parameter that controls the degree of risk aversion.




Finally, the energy cost associated with the investment decision can be expressed using the Gibbs energy formula:




```ΔG = ΔH - TΔS```




where ```ΔH``` is the change in enthalpy, given by:




```ΔH = C - C_0```




where ```C_0``` is the initial value of the smart contract.




```T``` is the temperature of the system, which reflects overall market conditions and can be adjusted based on external factors.




```ΔS``` is the change in entropy, given by:




```ΔS = R``` 




Putting everything together, we get:




```ΔG = (w1 * V1 * Q1 / P1 + w2 * V2 * Q2 / P2 + … + wn * Vn * Qn / Pn) - C0 - T(1 - exp(-λ * (w1 * ln(w1) + w2 * ln(w2) + … + wn * ln(w_n))))``` 




This formula provides a comprehensive way to evaluate the value, risk, and energy cost associated with an investment decision involving a smart contract holding multiple cryptocurrencies.
