There is in fact a whole branch of economics called Econophysics. As the name suggest, this is a research filed that applies theories and methiods originally developed by physicists in order to solve problems in economics. Some of these theories, include uncertainty or stochastic processes and nonlinear dynamics, applied to the study of financial markets, have also been termed statistical finance referring to its roots in statistical physics.

Financial people use stochastic differential equations together with Ito's integrals in order to evaluate risks. The procedure is similar to the one used in quantum mechanics and Brownian motion.

Since both the concept of entropy and the second thermodynamics law are deduced from probability theory, their abstractions can be applied to analyze the evolution of wealth distribution.

There is in fact a whole branch of economics called Econophysics. As the name suggest, this is a research filed that applies theories and methiods originally developed by physicists in order to solve problems in economics. Some of these theories, include uncertainty or stochastic processes and nonlinear dynamics, applied to the study of financial markets, have also been termed statistical finance referring to its roots in statistical physics.

I think the conservation laws have the crucial role in physics; for ecobomics similar laws are very important . Also active creative role of human beings should be taken into account. One example can be found in my paper in Russian "Stochastic prediction..of energy security."

Years ago, someone had told me that in Marxian philosophy, there are certain things which look similar to certain principles in Physics. Is that so? I have not actually studied Marxian philosophy.

I think there is no such analogy.In high examples Marxian philisophy is bright materialistic dialectics,its examples are valid for XIX century mainly. But spirit of dialectics is forever.

Econophysics is a relative new interdisciplinary research field, applying theories and methods originally developed by physicists in order to solve problems in economics, usually those including uncertainty or stochastic processes and nonlinear dynamics. Econophysics, also known as the physics of finance, is the study of the dynamical behavior of financial and economic markets.

It is well kwon that Adam Smith was deeply influenced by the principles of Newtonian and classical physics and firmly believed that this system was a model for all social and economic phenomena.. Newtonian physics described the world as deterministic, mechanistic, absolute and certain determined by objective laws. According to Smith, similarly objective laws could describe human behavior – particularly economic behavior.

The classical economists envisioned the free market as a completely self-regulating system controlled by the laws of the universe with no need for human interference. Just as planets and particles move in accordance with the laws of motion in Newtonian physics, people act according to Adam Smith in accordance with the laws of the market, such as supply and demand.

Classical economics has undergone several revisions over the past several hundred years that have left it dry, stale and devoid of any human values, but the basic principles are the same and they still cling to the assumptions of Newtonian physics. The principles of classical physics lent themselves nicely to classical economics.

Neoclassical economics, the current economic theory prevailing in the world, differs in several important ways from Smith’s classical economics. One prominent contrast is the complete removal of all values from economic thought. Neoclassical economists talk of the “perfect market” – one that exhibits “perfect competition” between businesses and “perfect information” between businesses and consumers. The “perfect market” will tend, so the theory goes, to a level of supply and demand that is socially optimal. Perfect competition implies perfect information, which exists when every individual is rational and has complete knowledge of 1) the method of pricing and 2) all methods and techniques of production. The consumer has perfect information when she knows everything about how a product was made and priced. The consumer will therefore be able to make the best possible decision when purchasing a product. Of course, in a real world the market is not perfect.

On the other hand, modern physics has shown that the world is not structured the way

Newton and his contemporaries thought. Rather, it is not deterministic, it is random, relative, holistic, subjective and uncertain.

Based on what has been said, we can state that are several principles that are commons to both Economics and Physics.

Banach contraction principle to solve nonlinear equations.

The arithmetics is certainly a common part of economy and physics. Probably the only one. There is no such thing as debt in physics (yet??), while physicists simply adore various conservation laws.

Marek

"There is no such thing as debt in physics (yet??)." Actually there is, welcome to the world of financial physics!

Issam: Perhaps this is why the econophysics sounds suspiciously at least to great part of more traditional physicists. However, usually there is no such reservation with respect to its purely mathematical side.

Can we perhaps discuss in detail about Econophysics?

There is an old joke: how to make small money playing the stock market? Until now the only sure rule was: just start with big money. I think the desire to show this joke has no solid grounds, as some traders indeed made fortunes (while many more got ruined) was the real driving force creating econophysics.

Roughly around 1950 (Markowitz) people started to consider more seriously how to make profit, not necessarily the big money, but persistent increase, by taking part in stock or money exchange rates. First of all some empirical facts were established, among them:

- stock prices are correlated, some positively (in the same area of human activity, say constructions or car making), some negatively

- the distributions of price changes have "fat tails", that is they are certainly not Gaussian. More precisely, the logarithms of of |price changes| are usually considered (minus logarithms for negative changes).

Accordingly, some rules were proposed: when and what to buy, when and what to sell, as well as when a "do nothing" or "wait" strategy is the most promising.

The other direction of investigations is how to predict sudden and big price changes (a crash or bubble, Didier Sornette and others) as this is the time for really big profits.

There is, of course, a question on investment horizon, i.e. how often one should perform his buy/sell actions. Others were investigating the dynamics of prices during some fixed period, either with very high resolution (milliseconds) or quite contrary - by looking at day-to-day changes only.

All this is called econophysics. Indeed, there are some terms taken directly from physics, mostly from thermodynamics, like entropy or diffusion but also from Newtonian dynamics (inertia). Nevertheless many concepts used here are of purely mathematical nature: random walks, Hurst exponent, fractals, Pareto front (multiobjective optimization), probability, differential equations, graph theory (including "social networks" paradigm), and many others.

The behavior of stock market is indeed hard to predict, with many factors being either out of control, unquantifiable, outside the scope of current methods or simply with unknown influence (gossip, political events, unexpected administrative regulations, etc).

For today the best recipe for making big money is still: be well informed (better and earlier than others) and make quick and correct decisions.

I am wonder why all economics is considered only as stocl market. It is not true.

A humble explanation, perhaps: stock market consists of great many agents contrary to, say, consortium of few manufacturers. Therefore statistical/thermodynamical approach seems justified, no matter that those agents are not strictly identical. Their individualism is practically irrelevant, in clear opposition to few "big boys".

One of the big movers in financial analysis is Markov Chains analysis . Where you see commonality in such models admitting Markov chains, if they exist in physics, you will see then a convergence between methodology of the two disciplines.

I am not an expert at all but Nancy Cartwright is a philosopher of science who has written in the last two decades on the common issues. She is an outstanding philosopher of physics.

Much of her work is on the web for free. Teaching:

Stanford University and the London School of Economics.

What are those common issues?

Dear Professor Hemanta Baruah,

In economics "fluctuation" is predominant object. This fluctuation plot is nothing but "signal" and in "physics" 'signal' is most important element.

Money in economics behaves just like energy in physics, or vice versa. Take this idea to heart and revisit Planck's famous December 1900 paper (which I did) and you can derive the whole radiation curve and give it a new meaning. What does this all mean? Consider this. If we prepare a graph of profits versus revenues for a company, what will we find? At one level, we will see linear behavior. This is akin to Einstein's photoelectric law, which is derived using Planck's radiation curve. At another level the profits-revenues graph will show a maximum point. All of this can be theorized. But, there is more. Empirical observations reveal all of these speculations, as I have shown in several articles posted on the internet; see www.scribd.com and look for vlamanan or vjlaxmanan. Good topic but looks like no one here has found these articles. Cheers! :)

Here's the link to the article mentioned above. It is a FREE document that can be downloaded. If there is any problem, I can be reached by email, as indicated.

http://www.scribd.com/doc/120324960/Money-in-Economics-is-Just-like-Energy-in-Physics-Extending-Planck-s-law-beyond-Physics

Equilibrium

https://www.google.com.my/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0CEIQFjAG&url=http%3A%2F%2Fdspace.ubvu.vu.nl%2Fbitstream%2Fhandle%2F1871%2F16131%2F8657.pdf%3Fsequence%3D5&ei=WAwPVYGXMMehugS3p4DwCg&usg=AFQjCNG0EOMweGdSPWtpfA23ACPJkXrEBw&sig2=Ny4heB9W5O41R5r4OwzoAw&bvm=bv.88528373,d.c2E

The Keynesian multiplier and the Half life of atomic energy/waste. How long it will take, there still will be something left.