 What Economists can learn from physics and financeJoseph L. McCauley MPRA Paper from University Library of Munich, Germany Abstract: Some economists (Mirowski, 2002) have asserted that the neoclassical economic model was motivated by Newtonian mechanics. This viewpoint encourages confusion. Theoretical mechanics is firmly grounded in reproducible empirical observations and experiments, and provides a very accurate description of macroscopic motions to within high decimal precision. In stark contrast, neo-classical economics, or ‘rational expectations’ (ratex), is a merely postulated model that cannot be used to describe any real market or economy, even to zeroth order in perturbation theory. In mechanics we study both chaotic and complex dynamics whereas ratex restricts itself to equilibrium. Wigner (1967) has isolated the reasons for what he called ‘the unreasonable effectiveness of mathematics in physics’. In this article we isolate the reason for what Velupillai (2005), who was motivated by Wigner (1960), has called the ineffectiveness of mathematics in economics. I propose a remedy, namely, that economic theory should strive for the same degree of empirical success in modeling markets and economies as is exhibited by finance theory. Keywords: Nonequilibrium; empirically based modelling; stochastic processes; complexity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:2240 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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