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On econophysics December 11, 2011

Posted by proeconomia in Main, Science and technology.
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Here is an article from a physicist, Mark Buchanan. He quotes, and rightly, the late Mandelbrot for his arguments but it still has the main problem faced by this movement: it lacks any foundation in how economists think and abstract their thinking into predictive models to be tested by the data. Econophysics attempts to explain the data by models originating from natural processes and sometimes is successful in it – but so are a multitude of simpler econometric models starting from the same premise. Furthermore, I have yet to see a model from econophysics that is helpful in designing economic policies, and that is a serious issue in economics.

This is the closing statement of the article: ”  Finding the expected disorder in the marketplace, and understanding its origins, could give economics a much stronger scientific foundation. ” If there is expected disorder in the marketplace and is indeed understood then there would be no reason for markets to exist: predictability implies, in the end, no arbitrage and makes the market a boring place to be. Also, please dear colleague, spare the patronizing about our foundations…just think that Keynes was also a pioneer on the foundations of probability.

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