Where Does Econophysics Fit in the Complexity Revolution? Dave Colander (Middlebury College)
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Lecture 13: Financial Disasters and Econophysics
Lecture 13: Financial Disasters and Econophysics Big problem: Power laws in economy and finance vs Great Moderation: (Source: http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/power-curves-what- natural-and-economic-disasters-have-in-common Analysis of big data, discontinuous change especially of financial sector, where efficient market theory missed the boat has drawn attention of specialists from physics and mathematics. Wall Street“quant”models may have helped the market implode; and collapse spawned econophysics work on finance instability. NATURE PHYSICS March 2013 Volume 9, No 3 pp119-197 : “The 2008 financial crisis has highlighted major limitations in the modelling of financial and economic systems. However, an emerging field of research at the frontiers of both physics and economics aims to provide a more fundamental understanding of economic networks, as well as practical insights for policymakers. In this Nature Physics Focus, physicists and economists consider the state-of-the-art in the application of network science to finance.” The financial crisis has made us aware that financial markets are very complex networks that, in many cases, we do not really understand and that can easily go out of control. This idea, which would have been shocking only 5 years ago, results from a number of precise reasons. What does physics bring to social science problems? 1- Heterogeneous agents – strange since physics draws strength from electron is electron is electron but STATISTICAL MECHANICS --- minority game, finance artificial agents, 2- Facility with huge data sets – data-mining for regularities in time series with open eyes. 3- Network analysis 4- Percolation/other models of “phase transition”, which directs attention at boundary conditions AN INTRODUCTION TO ECONOPHYSICS Correlations and Complexity in Finance ROSARIO N. -
From Big Data to Econophysics and Its Use to Explain Complex Phenomena
Journal of Risk and Financial Management Review From Big Data to Econophysics and Its Use to Explain Complex Phenomena Paulo Ferreira 1,2,3,* , Éder J.A.L. Pereira 4,5 and Hernane B.B. Pereira 4,6 1 VALORIZA—Research Center for Endogenous Resource Valorization, 7300-555 Portalegre, Portugal 2 Department of Economic Sciences and Organizations, Instituto Politécnico de Portalegre, 7300-555 Portalegre, Portugal 3 Centro de Estudos e Formação Avançada em Gestão e Economia, Instituto de Investigação e Formação Avançada, Universidade de Évora, Largo dos Colegiais 2, 7000 Évora, Portugal 4 Programa de Modelagem Computacional, SENAI Cimatec, Av. Orlando Gomes 1845, 41 650-010 Salvador, BA, Brazil; [email protected] (É.J.A.L.P.); [email protected] (H.B.B.P.) 5 Instituto Federal do Maranhão, 65075-441 São Luís-MA, Brazil 6 Universidade do Estado da Bahia, 41 150-000 Salvador, BA, Brazil * Correspondence: [email protected] Received: 5 June 2020; Accepted: 10 July 2020; Published: 13 July 2020 Abstract: Big data has become a very frequent research topic, due to the increase in data availability. In this introductory paper, we make the linkage between the use of big data and Econophysics, a research field which uses a large amount of data and deals with complex systems. Different approaches such as power laws and complex networks are discussed, as possible frameworks to analyze complex phenomena that could be studied using Econophysics and resorting to big data. Keywords: big data; complexity; networks; stock markets; power laws 1. Introduction Big data has become a very popular expression in recent years, related to the advance of technology which allows, on the one hand, the recovery of a great amount of data, and on the other hand, the analysis of that data, benefiting from the increasing computational capacity of devices. -
The Physical Modelling of Society: a Historical Perspective
Physica A 314 (2002) 1–14 www.elsevier.com/locate/physa The physical modelling ofsociety: a historical perspective Philip Ball Nature, 4-6 Crinan St, London N1 9XW, UK Abstract By seeking to uncover the rules ofcollective human activities, today’s statistical physicists are aiming to return to their roots. Statistics originated in the study ofsocial numbers in the 17th century, and the discovery ofstatistical invariants in data on births and deaths, crimes and marriages led some scientists and philosophers to conclude that society was governed by immutable “natural” laws beyond the reach ofgovernments, ofwhich the Gaussian “error curve” became regarded as the leitmotif. While statistics .ourished as a mathematical tool of all the sciences in the 19th century, it provoked passionate responses from philosophers, novelists and social commentators. Social statistics also guided Maxwell and Boltzmann towards the utilization ofprobability distributions in the development ofthe kinetic theory ofgases, the foundationof statistical mechanics. c 2002 Elsevier Science B.V. All rights reserved. Keywords: Statistics; History ofphysics; Statistical mechanics; Social science; Gaussian 1. Introduction The introduction ofprobability into the fundamentalnature ofthe quantum world by Bohr, Born and Schr8odinger in the 1920s famously scandalized some scholars ofscience’s philosophical foundations.But arguments about chance, probability and determinism were no less heated in the mid-19th century, when statistical ideas entered classical physics. James Clerk Maxwell (1878) let probabilistic physics bring him to the verge of mysticism: “it is the peculiar function of physical science to lead us to the conÿnes of the incomprehensible, and to bid us behold and receive it in faith, till such time as the E-mail address: [email protected] (P. -
John Von Neumann Between Physics and Economics: a Methodological Note
Review of Economic Analysis 5 (2013) 177–189 1973-3909/2013177 John von Neumann between Physics and Economics: A methodological note LUCA LAMBERTINI∗y University of Bologna A methodological discussion is proposed, aiming at illustrating an analogy between game theory in particular (and mathematical economics in general) and quantum mechanics. This analogy relies on the equivalence of the two fundamental operators employed in the two fields, namely, the expected value in economics and the density matrix in quantum physics. I conjecture that this coincidence can be traced back to the contributions of von Neumann in both disciplines. Keywords: expected value, density matrix, uncertainty, quantum games JEL Classifications: B25, B41, C70 1 Introduction Over the last twenty years, a growing amount of attention has been devoted to the history of game theory. Among other reasons, this interest can largely be justified on the basis of the Nobel prize to John Nash, John Harsanyi and Reinhard Selten in 1994, to Robert Aumann and Thomas Schelling in 2005 and to Leonid Hurwicz, Eric Maskin and Roger Myerson in 2007 (for mechanism design).1 However, the literature dealing with the history of game theory mainly adopts an inner per- spective, i.e., an angle that allows us to reconstruct the developments of this sub-discipline under the general headings of economics. My aim is different, to the extent that I intend to pro- pose an interpretation of the formal relationships between game theory (and economics) and the hard sciences. Strictly speaking, this view is not new, as the idea that von Neumann’s interest in mathematics, logic and quantum mechanics is critical to our understanding of the genesis of ∗I would like to thank Jurek Konieczny (Editor), an anonymous referee, Corrado Benassi, Ennio Cavaz- zuti, George Leitmann, Massimo Marinacci, Stephen Martin, Manuela Mosca and Arsen Palestini for insightful comments and discussion. -
The Social Physics Collective Matjaž Perc 1,2,3 Editorial More Than Two Centuries Ago Henri De Saint-Simon Envisaged Physical Laws to Describe Human Societies
www.nature.com/scientificreports OPEN The social physics collective Matjaž Perc 1,2,3 EDITORIAL More than two centuries ago Henri de Saint-Simon envisaged physical laws to describe human societies. Driven by advances in statistical physics, network science, data analysis, and information technology, this vision is becoming a reality. Many of the grandest challenges of our time are of a societal nature, and methods of physics are increasingly playing a central role in improving our understanding of these challenges, and helping us to fnd innovative solutions. The Social physics Collection at Scientifc Reports is dedicated to this research. lthough we are unique and hardly predictable as individuals, research has shown that in a collective we ofen behave no diferently than particles in matter1. Indeed, many aspects of collective behavior in human societies have turned out to be remarkably predictable, and this fact has paved the way for methods of Aphysics to be applied to many contemporary societal challenges. Examples include trafc2, crime3, epidemic pro- cesses4, vaccination5, cooperation6, climate inaction7, as well as antibiotic overuse8 and moral behavior9, to name just some examples. In fact, possible synergies between physical and social sciences have been foating around in the scientifc literature for centuries. Over two centuries ago, the French political and economic theorist Henri de Saint-Simon was amongst the frst to propose that society could be described by laws similar to those in physics10. However, similar ideas have been around already in the 17th century, when Tomas Hobbes based his theory of the state on the laws of motion, in particular on the principle of inertia, which was then deduced by his contemporary Galileo Galilei11. -
Social Thermodynamics, Social Hydrodynamics and Some Mathematical Applications in Social Sciences
International Journal of Modern Social Sciences, 2013, 2(2): 94-108 International Journal of Modern Social Sciences ISSN: 2169-9917 Journal homepage: www.ModernScientificPress.com/Journals/IJMSS.aspx Florida, USA Article Social Thermodynamics, Social Hydrodynamics and Some Mathematical Applications in Social Sciences Yi-Fang Chang Department of Physics, Yunnan University, Kunming, 650091, China Email: [email protected] Article history: Received 16 May 2013, Received in revised form 17 July 2013, Accepted 18 July 2013, Published 19 July 2013. Abstract: Based on the sameness for men or any elements in the social systems, we search the social thermodynamics, and possible entropy decrease in social sciences. Next, using the similar formulas of the preference relation and the utility function, we propose the confidence relations and the corresponding influence functions that represent various interacting strengths of different families, cliques and systems of organization. This produces a multiply connected topological economics. Further, we discuss the binary periods of the political economy by the complex function and the elliptic functions. Using the nonlinear equations of hydrodynamics we may research the formulations of the binary and multiple centers in various social systems. Finally, we propose the developed directions of society and a unification of simplicity and complexity from a new tree-field representation. The application of mathematics and physics will be an important direction of modern social science at 21 century. Keywords: social science, mathematics, thermodynamics, entropy, nonlinearity, hydrodynamics, topology, complex function 1. Introduction It is long time ago that mathematics is applied in various social sciences. This may trace to its source: Chinese Yi (I Ching, or The Book of Change) and Pythagoras. -
An Application of Econophysics to the History of Economic Thought: the Analysis of Texts from the Frequency of Appearance of Key Words
Discussion Paper No. 2015-51 | July 15, 2015 | http://www.economics-ejournal.org/economics/discussionpapers/2015-51 An Application of Econophysics to the History of Economic Thought: The Analysis of Texts from the Frequency of Appearance of Key Words Estrella Trincado and José María Vindel Abstract This article poses a new methodology applying the statistical analysis to the economic literature. This analysis has never been used in the history of economic thought, albeit it may open up new possibilities and provide us with further explanations so as to reconsider theoretical issues. With that purpose in mind, the article applies the intermittency of the turbulence in different economic texts, and specifically in three important authors: William Stanley Jevons, Adam Smith, and Karl Marx. JEL B16 B40 C18 Z11 Keywords Econophysics; history of economic thought; bibliometrics; applications of statistical analysis Authors Estrella Trincado, Universidad Complutense de Madrid, Spain, [email protected] José María Vindel, Centro de Investigaciones Energéticas, Medioambientales y Tecnológicas, Madrid, Spain Citation Estrella Trincado and José María Vindel (2015). An Application of Econophysics to the History of Economic Thought: The Analysis of Texts from the Frequency of Appearance of Key Words. Economics Discussion Papers, No 2015-51, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2015-51 Received July 7, 2015 Accepted as Economics Discussion Paper July 13, 2015 Published July 15, 2015 © Author(s) 2015. Licensed under the Creative Commons License - Attribution 3.0 1. INTRODUCTION The most obvious and usual way to deal with economic texts is to try to understand in an analytical way the theories put forward by the authors providing a scientific, social and economic context for that specific literature. -
A Critique of Econophysics
Munich Personal RePEc Archive Toolism! A Critique of Econophysics Kakarot-Handtke, Egmont University of Stuttgart, Institute of Economics and Law 30 April 2013 Online at https://mpra.ub.uni-muenchen.de/46630/ MPRA Paper No. 46630, posted 30 Apr 2013 13:04 UTC Toolism! A Critique of Econophysics Egmont Kakarot-Handtke* Abstract Economists are fond of the physicists’ powerful tools. As a popular mindset Toolism is as old as economics but the transplants failed to produce the same successes as in their aboriginal environment. Economists therefore looked more and more to the math department for inspiration. Now the tide turns again. The ongoing crisis discredits standard economics and offers the chance for a comeback. Modern econophysics commands the most powerful tools and argues that there are many occasions for their application. The present paper argues that it is not a change of tools that is most urgently needed but a paradigm change. JEL A12, B16, B41 Keywords new framework of concepts; structure-centric; axiom set; paradigm; income; profit; money; invariance principle *Affiliation: University of Stuttgart, Institute of Economics and Law, Keplerstrasse 17, D-70174 Stuttgart. Correspondence address: AXEC, Egmont Kakarot-Handtke, Hohenzollernstraße 11, D- 80801 München, Germany, e-mail: [email protected] 1 1 Powerful tools When Arnold Schwarzenegger, in his most popular roles, has seen and suffered enough evil he makes up his mind and first of all breaks into a gun store. With the eyes of an expert he spots the most suitable devices for the upcoming tasks. When he leaves the store with maximum firepower and determination we can rely upon that in the sequel humankind will be better off. -
Econophysics Point of View of Trade Liberalization: Community Dynamics, Synchronization, and Controllability As Example of Collective Motions
DPRIETI Discussion Paper Series 16-E-026 Econophysics Point of View of Trade Liberalization: Community dynamics, synchronization, and controllability as example of collective motions IKEDA Yuichi AOYAMA Hideaki Kyoto University RIETI IYETOMI Hiroshi MIZUNO Takayuki Niigata University National Institute of Informatics OHNISHI Takaaki SAKAMOTO Yohei University of Tokyo Kyoto University WATANABE Tsutomu University of Tokyo The Research Institute of Economy, Trade and Industry http://www.rieti.go.jp/en/ RIETI Discussion Paper Series 16-E-026 March 2016 Econophysics Point of View of Trade Liberalization: Community dynamics, synchronization, and controllability as example of collective motions* IKEDA Yuichi 1, AOYAMA Hideaki 2 IYETOMI Hiroshi 3, MIZUNO Takayuki 4, OHNISHI Takaaki 5, SAKAMOTO Yohei2, WATANABE Tsutomu 6 1 Graduate School of Advanced Integrated Studies in Human Survivability, Kyoto University, 2 Graduate School of Science, Kyoto University 3 Graduate School of Science and Technology, Niigata University 4 Information and Society Research Division, National Institute of Informatics, 5 Graduate School of Information Science and Technology, University of Tokyo 6 Graduate School of Economics, University of Tokyo Abstract In physics, it is known that various collective motions exist. For instance, a large deformation of heavy nuclei at a highly excited state, which subsequently proceeds to fission, is a typical example. This phenomenon is a quantum mechanical collective motion due to strong nuclear force between nucleons in a microscopic system consisting of a few hundred nucleons. Most national economies are linked by international trade and consequently economic globalization forms a giant economic complex network with strong links, i.e., interactions due to increasing trade. In Japan, many small and medium enterprises could achieve higher economic growth by free trade based on the establishment of an economic partnership agreement (EPA), such as the Trans-Pacific Partnership (TPP). -
Econophysics: a Brief Review of Historical Development, Present Status and Future Trends
1 Econophysics: A Brief Review of Historical Development, Present Status and Future Trends. B.G.Sharma Sadhana Agrawal Department of Physics and Computer Science, Department of Physics Govt. Science College Raipur. (India) NIT Raipur. (India) [email protected] [email protected] Malti Sharma WQ-1, Govt. Science College Raipur. (India) [email protected] D.P.Bisen SOS in Physics, Pt. Ravishankar Shukla University Raipur. (India) [email protected] Ravi Sharma Devendra Nagar Girls College Raipur. (India) [email protected] Abstract: The conventional economic 1. Introduction: approaches explore very little about the dynamics of the economic systems. Since such How is the stock market like the cosmos systems consist of a large number of agents or like the nucleus of an atom? To a interacting nonlinearly they exhibit the conservative physicist, or to an economist, properties of a complex system. Therefore the the question sounds like a joke. It is no tools of statistical physics and nonlinear laughing matter, however, for dynamics has been proved to be very useful Econophysicists seeking to plant their flag in the underlying dynamics of the system. In the field of economics. In the past few years, this paper we introduce the concept of the these trespassers have borrowed ideas from multidisciplinary field of econophysics, a quantum mechanics, string theory, and other neologism that denotes the activities of accomplishments of physics in an attempt to Physicists who are working on economic explore the divine undiscovered laws of problems to test a variety of new conceptual finance. They are already tallying what they approaches deriving from the physical science say are important gains. -
Response to “Worrying Trends in Econophysics” Joseph L. Mccauley Physics Department University of Houston Houston, Tx. 77204
Response to “Worrying Trends in Econophysics” Joseph L. McCauley Physics Department University of Houston Houston, Tx. 77204 [email protected] and Senior Fellow COBERA Department of Economics J.E.Cairnes Graduate School of Business and Public Policy NUI Galway, Ireland Abstract This article is a response to the recent “Worrying Trends in Econophysics” critique written by four respected theoretical economists [1]. Two of the four have written books and papers that provide very useful critical analyses of the shortcomings of the standard textbook economic model, neo-classical economic theory [2,3] and have even endorsed my book [4]. Largely, their new paper reflects criticism that I have long made [4,5,6,7,] and that our group as a whole has more recently made [8]. But I differ with the authors on some of their criticism, and partly with their proposed remedy. 1. Money, conservation laws, and neo-classical economics Our concerns are fourfold. First, a lack of awareness of work which has been done within economics itself. Second, resistance to more rigorous and robust statistical methodology. Third, the belief that universal empirical regularities can be found in many areas of economic activity. Fourth, the theoretical models which are being used to explain empirical phenomena. The latter point is of particular concern. Essentially, the models are based upon models of statistical physics in which energy is conserved in exchange processes. Gallegati, Keen, Lux, and Ormerod [1] Since the authors of “Worrying” [1] begin with an attack on assumptions of conservation of money and analogs of conservation of energy in economic modelling, let me state from the outset that it would generally be quite useless to assume conserved quantities in economics and finance (see [4], Ch. -
The Visible Map and the Hidden Structure of Economics1 Angela Ambrosino*, Mario Cedrini*, John B. Davis**, Stefano Fiori*, Marco
The Visible Map and the Hidden Structure of Economics1 Angela Ambrosino*, Mario Cedrini*, John B. Davis**, Stefano Fiori*, Marco Guerzoni*,*** and Massimiliano Nuccio* * Dipartimento di Economia e Statistica “Cognetti de Martiis”, Università di Torino, Italy ** Marquette University and University of Amsterdam *** ICRIOS, Bocconi University, Milan Abstract The paper is a first, preliminary attempt to illustrate the potentialities of topic modeling as information retrieval system helping to reduce problems of overload information in the sciences, and economics in particular. Noting that some motives for the use of automated tools as information retrieval systems in economics have to do with the changing structure of the discipline itself, we argue that the standard classification system in economics developed over a hundred years ago by the American Economics Association, the Journal of Economic Literature (JEL) codes, can easily assist in detecting the major faults of unsupervised techniques and possibly provide suggestions about how to correct them. With this aim in mind, we apply to the corpus of (some 1500) “exemplary” documents for each classification of the Journal of Economics Literature Codes indicated by the American Economics Association in the “JEL codes guide” (https://www.aeaweb.org/jel/guide/jel.php) the topic-modeling technique known as Latent Dirichlet Allocation (LDA), which serves to discover the hidden (latent) thematic structure in large archives of documents, by detecting probabilistic regularities, that is trends in language text and recurring themes in the form of co-occurring words. The ambition is to propose and interpret measures of (dis)similarity between JEL codes and the LDA topics resulting from the analysis.