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Econophysics

This term has been around for some years, but has yet to appear in any dictionary I know of. It is the application of the principles of mathematical physics to the study of financial markets. Experts are beginning to discover that the world economy behaves like a collection of electrons or a group of water molecules that interact with each other. With new tools of statistical analysis, like the recent breakthroughs in understanding chaotic systems, it is beginning to be possible to make sense of these hugely complicated systems (one year of the world’s financial markets produces about 24 CD-ROMs’ worth of data, so there’s no shortage of material to number-crunch). As a result, specialists are addressing a variety of questions that are difficult or impossible to understand using conventional economic principles: Is the market random, or is there any underlying order? In particular, are there any long-term trends that can be foretold? Are financial crashes inevitable? Someone who is an expert in this arcane field is an econophysicist.

“Obviously, you can’t predict the future,” said Gene Stanley, a physicist at Boston University who organized the econophysics session. But, he added, such research reveals how physicists and economists should compare notes in the future.

Dallas Morning News, Mar. 2000

Judging by the work of two Parisian econophysicists, they are making a controversial start at tearing up some perplexing economics and reducing them to a few elegant general principles — with the help of some serious mathematics borrowed from the study of disordered materials.

New Scientist, Aug. 2000

Page created 9 Sep. 2000

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Last modified: 9 September 2000.