Econophysics: Still Controversial After All These Years

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Science  24 Jul 2009:
Vol. 325, Issue 5939, pp. 408
DOI: 10.1126/science.325_408

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Traditional economic theory is fundamentally flawed, econophysicists say. It relies on "representative agent models" in which a hypothetical average Joe interacts with monolithic economic forces. Such models ignore correlations that lead to, say, booms and busts. To prove rigorous theorems, economists assume that market fluctuations follow a bell-shaped "Gaussian distribution," which underestimates the probability of big swings. Econophysicists claim to take a more data-driven approach. They have yet to score a major breakthrough, but they say their contributions are gaining wider acceptance. Still, econophysics does not impress some economists.