Similarities and differences between physics and economics

H.E. Stanley, L.A.N. Amaral, Xavier Gabaix, P. Gopikrishnan and V. Plerou

Physica A: Statistical Mechanics and its Applications, 2001, vol. 299, issue 1, 1-15

Abstract: In this opening talk, we discuss some of the similarities between work being done by economists, and by physicists seeking to contribute to economics. We also mention some of the differences in the approaches taken, and justify these different approaches by developing the argument that by approaching the same problem from different points of view new results might emerge. In particular, we review some recent results, for example the finding that there are two new universal scaling models in economics: (i) the fluctuation of price changes of any stock market is characterized by a PDF which is a simple power law with exponent 4 that extends over 102 standard deviations (a factor of 108 on the y-axis); (ii) for a wide range of economic organizations, the histogram that shows how size of organization is inversely correlated to fluctuations in size with an exponent ≈1/6. Neither of these two new laws has a firm theoretical foundation. We also discuss results that are reminiscent of phase transitions in spin systems, where the divergent behavior of the response function at the critical point (zero magnetic field) leads to large fluctuations.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:299:y:2001:i:1:p:1-15

DOI: 10.1016/S0378-4371(01)00351-X

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