Interests - Econophysics

What is Econophysics?

Econophysics is a relatively new branch of studies.  The story told is that some scientists working in the field of high-energy particle physics needed to turn down their particle accelerators annually for maintenance.  The computers that collated and analysed, in real time, the massive amounts of data generated by the accelerators; these computers did not need to be turned off.  So, they had these high-end computers sitting idle while the data source was shut down, and they were looking for something to do.  Several countries had recently released massive amounts of detailed economic data, and the scientists decided to apply the same analytic techniques developed for high-energy physics data to the economic micro-data.  And so, an interest in applying lessons learned in the hard sciences (physics, chemistry, biology) to the social sciences (sociology, economics) appeared yet one more time.  The term 'econophysics' was coined in 1995, and econophysics conferences and study centres have become a common thing world wide since then.  However, as you read some recent papers on topics of interest to econophysicists, you realise that a small number of people have been working on the application of knowledge from the hard sciences to economics since at least 1960, or in some cases, since the 1920s.

There are significant differences between the views of the econophysicists and the economists.  The topics being addressed by the econophysicists seem paltry and small when compared with the grand theories of economics.  However, those grand theories seem to be founded on seriously faulty assumptions, and untestable beliefs.  It is no small thing to tell a person that his/her life's work is built on a faulty foundation, and that they have to tear it down and start over.  Understandably, the economists are inclined to reject and belittle the views of the econophysicsts.  Bruised egos aside, the work has to be done.

Interesting times!!

This is a PowerPoint presentation I made to the CANUSSEE 2015 conference in Vancouver.  This was a joint conference between three groups of economists:  The US Society for Ecological Economics (USSEE); the Canadian Society for Ecological Economics (CANSEE); and the Association for Biophysical Economics (BPE).  My presentation was through my membership in CANSEE.

The text of my presentation is in the "Notes" section of each slide.

To download a copy of the presentation, click here:

151116 PPT BDY Presentation R7.pptx

The gist of the presentation is as follows:  Bennati, Dragulescu and Yakovenko, three Econophysicsts, have developed a computerized model economy using a "gas model" for the interaction between economic agents.  This model, though exceedingly simplistic, nevertheless describes the distribution of wealth (and, by implication the distributions of income, and of access to energy) that is found in most modern economies with reasonable accuracy.  I dip into four empirical studies that seem to corroborate this.  Then I briefly outline some of the implications for Ecological Economics, as an economic theory, if it is to become more than a nice Utopian dream, and become useful for managing both the defence of the biosphere, as well as the implementation of a socially just national and global society.

Econophysics (Links)

Website: The Econophysics Forum - This site is part of the site of the University of Fribourg in Switzerland.  It offers a forum for discussion of topics in econophysics, and for distribution of preprints of papers and articles.

Website:  Econophysics Research in Victor Yakovenko's Group - Professor Yakovenko introduced me to the world of econophysics.  There are a lot of very interesting papers available through his site, as well as links to other good resources.

Econophysics (Books)

"Non-equilibrium Thermodynamics and the Production of Entropy, Life, Earth and Beyond"; A. Kleidon, R.D. Lorenz (Eds.); Springer; 2005.

This is a compendium of articles discussing the overarching role of the Maximum Entropy Principle (MEP) in all processes on the Earth.  There is one article, number 18 in the book, which addresses economic processes, and it is entitled "Insights from Thermodynamics for the Analysis of Economic Processes" written by Matthias Ruth of the Environmental Policy Program, School of Public Affairs, University of Maryland, College Park, MD 20742, USA. 

The abstract of the paper reads as follows: - "The laws of thermodynamics constrain transformations of materials and energy, and thus have implications for economic processes.  This paper provides an overview over the uses and applications of concepts from thermodynamics in economic analysis at the level of individual processes and explores potential constraints at larger system levels - the economy as a whole and the ecosystems within which economies are embedded.  Specific emphasis will be placed on the ways in which insights from equilibrium and non-equilibrium thermodynamics can be used to better describe - and understand - economic activity and its interactions with the global environment."

For those interested in the role of the MEP principle in economic processes I suggest you read (a) the forward, (b) chapter 1 which provides an overview of the role of MEP in the worlds ecosystems, and (c) chapter 18 which addresses economic processes, as described above.

"Classical Econophysics"; W. Paul Cockshott, Allin F. Cottrell;, Gregory J. Michaelson, Ian P. Wright, and Victor M. Yakovenko; Routledge Advancements in Experimental and Computable Economics; Routledge; 2009.

The abstract reads, in part "This monograph examines the domain of classical political economy using the methodologies developed in recent years by both the new discipline of econo-physics and by computing science.  This approach is used to re-examine the classical subdivisions of political economy: production, exchange, distribution and finance." 

A graduate-level text, this is nevertheless quite readable with extended explanations in words and sufficient mathematics to support the arguments.  I found this book to be a real "eye-opener". 

In chapters 1-6 the authors argue the existence of an equivalency between classic thermodynamic entropy (as per Boltzmann) and informational entropy (as per Shannon) and show how the principle of entropy production encompasses thermodynamic, informational and economic processes.  They also make arguments about the value of physical labour that indirectly support my decision to base intrinsic values, in ModEco, on metabolic needs.

ModEco's "Perpetual Motion Machine" is able to generate a distribution of wealth similar to the Boltzmann-Gibbs distribution described in chapter 8 of the book, entitled "The Statistical Mechanics of Money".  This chapter is definitely recommended reading.

Last updated: November 2015