As everyone ponders why could we not have seen the financial crisis one line of thought is can physics help us and so the rise of the new field called econophysics - the use of tools of physics in economics. However Rick Bookstaber thinks no . Nice post around this newest avataar. Excerpts
"during an earthquake things shake around and fall, and during a market crisis things shake around and fall. Seismology predicts the former, so why not the latter? "
"...fledgling discipline of econophysics. The reason it persists is first of all, there are not many jobs for physicist in physics, and most of finance is child’s play once you have gone through the rigors of a physics degree, so a lot of physicists end up in finance." :-)
"while physics can generate useful models if there is well-parameterized uncertainty, where we know the distribution of the randomness, it becomes less useful if the uncertainty is fuzzy and ill-defined, what is called Knightian uncertainty."
"In the Bruce Lee movie, Enter the Dragon, Lee faces his arch enemy in a fight. To intimidate Lee, his opponent holds up a board, and splits it in two with his fist. Lee watches passively and says, “Boards don’t hit back”. That gets to the reason physics does not work in finance: markets do hit back."
" You can’t build in a feedback or reactive model, because you don’t know what to model. And if you do know – by the time you know – the odds are the market has changed. That is the whole point of what makes a trader successful – he can see things in ways most others do not, anticipate in ways others cannot, and then change his behavior when he starts to see others catching on."
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