As an economist with a background in mathematics and physics I very much appreciated ‘econophysics’ and associated efforts, but a short while into my foray I began to realize that economics is afflicted with a dearth of conserved quantities. Physics has plenty of these (sometimes absolute, sometimes approximate) laws of conservation (conservation of energy, conservation of mass-energy, conservation of linear/angular momentum, et cetera) and these laws of conservation are critically important in constraining the dynamics a system can adhere to and thus constitute a kind of ‘shortcut’ that allows apparently intractable problems to be deftly solved by putting these constraints to masterful use. Economics has none of this. Even the apparently solid concept of ‘wealth’ (even in its weaker relative form) upon closer inspection has no fundamental basis: transactions between two parties can affect the market value of an asset and therefore increase or decrease the wealth of all of those who own (or owe) such assets.
The field therefore rapidly decayed into a form of “computational economics”. This might appear similar to “computational physics” and its use of finite element models and massively parallel simulations of particle systems to solve fluid dynamics problems. Trouble is, those systems are built up from elements that respond to the net of extant forces acting upon them, whereas in economics agents can and do act on the basis of what they expect those forces might be in the future. Self-fulfilling prophecies are “very much a thing” in economic and financial phenomenology: bubbles, crashes, recessions, booms, the whole business cycle itself...
Add to that that some actors, even very significant ones, in those markets might have really weird utility functions — for example, central banks seek not to maximise their utility — and that some agents are not rational at all (noise-traders, entrepreneurs misreading trends, & cetera) and you have another big flaw in the framework.
I also appreciate any methodological approach, if it seemed otherwise people excuse this.
But I am reasonably disappointed by the progress of econophysics given its implied ambition back then.
If there are physicists or mathematicians interested in economics, I would recommend two things.
First, delve deep into equilibrium analysis under uncertainty, game theory and mechanisms design and strategic interaction with externalities (e.g. social networks), to understand the "mathematical" and mechanical difficulties of modeling strategic human behavior under limited information. Pay ESPECIALLY attention to aggregation, e.g. when an outcome distribution implies behavior that we can influence, or when such behavior actually aggregates to overall outcomes.
Second, actually read into sociology and perhaps psychology. Here, you want to see how history dependence, the fluidity of meaning, institutions and the endogeneity of goals, may influence behavior. Behavioral econ and some experiments also.
If you, with these difficulties in mind, want to improve upon economic modeling, you are more than welcome.
But please, don't just rename the variables in a physics model.
Not really true. Econophysics, which is composed almost entirely of physicists, has not really panned out in any way.
One of the biggest criticisms of economics is faith in complex mathematical models without solid foundations or conserved quantities like in physics. Econophysics doubles down on this. It's not the right direction.
It's panned out in the sense that it earned them funding and prestige, which is the aim of economics (as opposed to investigating truth, which is the aim of physics/science).
Speaking as a physical scientist, that is a really unhelpful and bizarre opinion. Many areas of physical science, especially medicine, are facing a replication crisis due to shoddy stats themselves. And it's not like the goal of physical science academics isn't also funding and prestige (have you BEEN in academia?).
Every scientific field has its problems. Arrogantly dismissing economics while assuming physical scientists are amazing truth-seeking ubermenschen is just stupid.
He and his colleagues have developed a simulink-like application for stock-flow consistent modeling of the macroeconomy. And he's had some important insights from very simple models. He's able to easily switch between the "loanable funds" and "endogenous money" models of lending, for example, and show the consequences of lending to the greater economy under those models. He developed that example in order to get neoclassical economists, like Krugman, to abandoned their fallicious loanable funds model, which multiple central banks have stated quite clearly is flat out wrong.
No I was not, but I’m looking into it right now. I built flow/stock models to help my company’s decision-making processes a few years ago after being exposed to them at a convention in 2012.
I’d say it proves that cryptocurrencies that do not allow fractional reserve banking are just rehashes (no pun intended) of old & discredited bimetallic/gold standard/specie/mercantilist ways of thinking.
The field therefore rapidly decayed into a form of “computational economics”. This might appear similar to “computational physics” and its use of finite element models and massively parallel simulations of particle systems to solve fluid dynamics problems. Trouble is, those systems are built up from elements that respond to the net of extant forces acting upon them, whereas in economics agents can and do act on the basis of what they expect those forces might be in the future. Self-fulfilling prophecies are “very much a thing” in economic and financial phenomenology: bubbles, crashes, recessions, booms, the whole business cycle itself...
Add to that that some actors, even very significant ones, in those markets might have really weird utility functions — for example, central banks seek not to maximise their utility — and that some agents are not rational at all (noise-traders, entrepreneurs misreading trends, & cetera) and you have another big flaw in the framework.