Econophysics
Roughly speaking, economics is a social science that attempts to understand, explain and hopefully predict the flow of wealth that arises from the wants and needs of human activity, I think. The credibilty of economics as a science has been questioned in the past, but it often does successfully what is sets out to do as economists employ tools and techniques to study and forecast economies.
Economists will repeatedy observe a particular phenomena and use these observations to predict future economic trends. Economists will also try to explain the observations with various assumptions of human activity and principles such as supply and demand, and correspondingly design simplified economic models to further their understanding of economics. These models, although simple compared to the complexities of actual reality, can work well and consequently are used to make various decisions.
Unfortunately, all is not well in the land of economics. Exceptions to the repeated observations do occur. Economic models often do fail to predict or explain certain phenomena. Economists' explanations of some observations are dubious at best. Economists make largely more observations than predictions. And surprisingly, while economic thought is arguably centries old, higher-level mathematics only began to play a crucial role in economics post-WW2.
Physics on the other hand has always been steadfastly coupled with mathematics. Physicists will employ every mathematical trick available - much to the chagrin of pure mathematicians - to explain, model and predict physical phenomena. One area of physics known as statistical mechanics uses statistical methods, physical assumptions and the properties and arrangements of the universe's building-blocks on the small-scale to model and predict observations on the large-scale. Statistical mechanics thus effectively explains the large-scale by summing all the actions on the small-scale.
Similarly, economies and financial markets are essentially driven by individual units - humans. With this in mind, two French physicists recently decided they would try to explain the century-old previously-unexplained observation in various societies known as the Pareto Law of Wealth Distribution. This distribution effectively states that a small minority will possess the majority of wealth. The physcists treated individual people as atoms in matter and the amount amd frequency of trading within the economy as temperature. Amazingly, with the application of the methods from physics, the equations of a Pareto distribution arose, thus validating their physial-turned-economical model.
Obvously, these are early days as this new field known as econophysics has only been around for a decade or so. Hopefully, with the right application of mathematics and physics economies will be better understood. As Dr Karl suggests, we might even be able to adjust that Pareto distibution slightly and share some of the wealth around.
Economists will repeatedy observe a particular phenomena and use these observations to predict future economic trends. Economists will also try to explain the observations with various assumptions of human activity and principles such as supply and demand, and correspondingly design simplified economic models to further their understanding of economics. These models, although simple compared to the complexities of actual reality, can work well and consequently are used to make various decisions.
Unfortunately, all is not well in the land of economics. Exceptions to the repeated observations do occur. Economic models often do fail to predict or explain certain phenomena. Economists' explanations of some observations are dubious at best. Economists make largely more observations than predictions. And surprisingly, while economic thought is arguably centries old, higher-level mathematics only began to play a crucial role in economics post-WW2.
Physics on the other hand has always been steadfastly coupled with mathematics. Physicists will employ every mathematical trick available - much to the chagrin of pure mathematicians - to explain, model and predict physical phenomena. One area of physics known as statistical mechanics uses statistical methods, physical assumptions and the properties and arrangements of the universe's building-blocks on the small-scale to model and predict observations on the large-scale. Statistical mechanics thus effectively explains the large-scale by summing all the actions on the small-scale.
Similarly, economies and financial markets are essentially driven by individual units - humans. With this in mind, two French physicists recently decided they would try to explain the century-old previously-unexplained observation in various societies known as the Pareto Law of Wealth Distribution. This distribution effectively states that a small minority will possess the majority of wealth. The physcists treated individual people as atoms in matter and the amount amd frequency of trading within the economy as temperature. Amazingly, with the application of the methods from physics, the equations of a Pareto distribution arose, thus validating their physial-turned-economical model.
Obvously, these are early days as this new field known as econophysics has only been around for a decade or so. Hopefully, with the right application of mathematics and physics economies will be better understood. As Dr Karl suggests, we might even be able to adjust that Pareto distibution slightly and share some of the wealth around.
posted by Engels at 12:30 pm
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