Can there be a physics of financial markets? Methodological reflections on econophysics
Open access
Date
2016-12Type
- Journal Article
Abstract
We address the question whether there can be a physical science of financial markets. In particular, we examine the argument that, given the reflexivity of financial markets (i.e., the feedback mechanism between expectations and prices), there is a fundamental difference between social and physical systems, which demands a new scientific method. By providing a selective history of the mutual cross-fertilization between physics and economics, we reflect on the methodological differences of how models and theories get constructed in these fields. We argue that the novel conception of financial markets as complex adaptive systems is one of the most important contributions of econophysics and show that this field of research provides the methods, concepts, and tools to scientifically account for reflexivity. We conclude by arguing that a new science of economic and financial systems should not only be physics-based, but needs to integrate findings from other scientific fields, so that a truly multi-disciplinary complex systems science of financial markets can be built. Show more
Permanent link
https://doi.org/10.3929/ethz-b-000125725Publication status
publishedExternal links
Book title
Discussion and Debate: Can Economics be a Physical Science?Journal / series
The European Physical Journal Special TopicsVolume
Pages / Article No.
Publisher
SpringerOrganisational unit
03738 - Sornette, Didier (emeritus) / Sornette, Didier (emeritus)
Notes
It was possible to publish this article open access thanks to a Swiss National Licence with the publisher.More
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