A model is proposed that describes the evolution of a mixed state of a quantum system for which gain and loss of energy or amplitude are present. Properties of the model are worked out in detail. In particular, invariant subspaces of the space of density matrices corresponding to the fixed points of the dynamics are identified, and the existence of a transition between the phase in which gain and loss are balanced and the phase in which this balance is lost is illustrated in terms of the time average of observables. The model is extended to include a noise term that results from a uniform random perturbation generated by white noise. Numerical studies of example systems show the emergence of equilibrium states that suppress the phase transition.PACS numbers: 03.65. Ca, 05.30.Rt, 03.65.Yz Over the past decade there have been considerable research interests, both theoretical and experimental, into the static and dynamic properties of classical and quantum systems for which gain and loss are present [1,2]. This is in part motivated by the realisation that when a system is placed in a configuration in which its energy or amplitude is transferred into its environment through one channel, but at the same time is amplified by the same amount through another channel, the resulting dynamics can exhibit features that are similar to those seen in Hamiltonian dynamical systems. The time evolution of such a system can be described by a Hamiltonian that is symmetric under a space-time reflection, that is, invariant under the parity-time (PT) reversal.Interest in the theoretical study of PT symmetry was triggered by the discovery that complex PT-symmetric quantum Hamiltonians can possess entirely real eigenvalues [3]. One distinguishing feature of PT-symmetric quantum systems is the existence of phase transitions associated with the breakdown of the symmetry. That is, depending on the values of the matrix elements of the Hamiltonian, its eigenstates may or may not be symmetric under the parity-time reversal. In the 'unbroken phase' where the eigenstates respect PT symmetry, the eigenvalues are real and there exists a similarity transformation that maps a local PT-symmetric Hamiltonian into a typically nonlocal Hermitian Hamiltonian [4,5]; whereas in the 'broken phase' the eigenvalues constitute complex conjugate pairs. The transition between these phases is similar to second-order phase transitions in statistical mechanics, accompanied by singularities in the covariance matrix of the estimators for the parameters in the Hamiltonian (this can be seen by using methods of information geometry [6]).Experimental realisations of these phenomena are motivated in part by the observation that the presence of a loss, which traditionally has been viewed as an undesirable feature, can positively be manipulated so as to generate unexpected interesting effects (cf. [7]). In particular, PT phase transitions have been predicted or observed in laboratory experiments for a range of systems; most notably in optical waveguides [8][9][10], but ...