Psychic Arbitrage: Friction, Informational Efficiency, and a Transactional Grammar for Defense (Preprint, v26.1)

Draft version 26.1, 26 October 2026. This paper has not been peer reviewed. Submitted to Psychoanalytic Psychology (American Psychological Association) on 27 October 2026.

Abstract. Freud's economic hypothesis held that the psychic apparatus distributes, transforms, and pays for affect, but it never acquired measurable variables. The free energy principle restored the economic intuition computationally, yet leaves unspecified the operations through which a particular apparatus keeps its affective valuations workable. This article proposes psychic arbitrage as an algorithmic-level grammar for those operations and states three testable claims. First, the proper phenomenon is valuation incoherence: the same content carries different affective values in different functional registers, a formal reading of intrapsychic conflict. The financial no-arbitrage condition is formally a coherence condition; defenses restore local coherence at minimal cost, not necessarily toward accuracy. Second, psychic friction, the precision of register-specific priors relative to incoming evidence, is distinguished from informational efficiency, the accuracy of the resulting valuations. A minimal estimation model shows that efficiency is an inverted-U function of friction with a volatility-dependent optimum, and that reflexive feedback destabilizes valuation once its strength exceeds 1 + φ, so that low-friction regimes fail first. Third, psychopathology is organized along the friction axis, with depression, obsessive–compulsive disorder, borderline organization, and consolidated delusion at the high-friction pole, and mania and traumatic flooding at the low-friction pole. Friction is given a behavioral index independent of self-reported efficiency. The framework yields predictions that diverge from energetic and entropy-based accounts, including a crossover effect of friction-lowering interventions and a liquidity–solvency distinction within depression, and it states the conditions under which it should be abandoned.

Keywords: psychic arbitrage, defense mechanisms, free energy principle, precision, psychopathology.

What changed since v20 (February 2026). (1) The no-arbitrage condition is read as a coherence condition, not an efficiency condition: a defense restores coherence at the expense of accuracy, and working-through restores both. (2) Psychic friction and informational efficiency are distinct variables; efficiency is an inverted-U function of friction, with the optimum φ* = [√(1 + 4r/q) − 1]/2 derived from a fixed-gain estimation model and a reflexive-feedback stability threshold g < 1 + φ. (3) Six predictions with stated conditions of failure replace the earlier six-configuration taxonomy; the earlier reading of mania as "excess efficiency" is superseded. The present version revises and supersedes v10 and v20, which remain available under their own DOIs in this record's version history.

Supplemental materials deposited with this version: S1, Python code reproducing the model and Figure 1 (S1_friction_efficiency_model.py); S2–S5, term-by-term correspondences, the full transactional taxonomy of defenses, therapeutic functions and financial correspondents, and derivations (PDF); Figure 1 (TIFF, 600 dpi).

Psychic Arbitrage Research Programme — related records (concept DOIs): framework preprint, this record, 10.5281/zenodo.18643048; Supplementary Material, Appendices A–C, 10.5281/zenodo.18670463; Theoretical Extensions, 10.5281/zenodo.18702678; PAPP-D instrument documentation, 10.5281/zenodo.18958076; PAPP-D study protocol, 10.5281/zenodo.18957906; PAPP v0.9, 10.5281/zenodo.18651011; ICD-11 bridging preprint, 10.5281/zenodo.18651743; preprint of the Frontiers in Psychiatry Perspective, 10.5281/zenodo.18663700. Published companion article: Niculescu, L. (2026). When the market asks no price: AI chatbot interaction as psychic market disruption. Frontiers in Psychiatry, 17, 1812464, https://doi.org/10.3389/fpsyt.2026.1812464. Variant form on SSRN: https://doi.org/10.2139/ssrn.6254479.