What Economists can learn from physics and finance
Some economists (Mirowski, 2002) have asserted that the neoclassical economic model was motivated by Newtonian mechanics. This viewpoint encourages confusion. Theoretical mechanics is firmly grounded in reproducible empirical observations and experiments, and provides a very accurate description of macroscopic motions to within high decimal precision. In stark contrast, neo-classical economics, or ‘rational expectations’ (ratex), is a merely postulated model that cannot be used to describe any real market or economy, even to zeroth order in perturbation theory. In mechanics we study both chaotic and complex dynamics whereas ratex restricts itself to equilibrium. Wigner (1967) has isolated the reasons for what he called ‘the unreasonable effectiveness of mathematics in physics’. In this article we isolate the reason for what Velupillai (2005), who was motivated by Wigner (1960), has called the ineffectiveness of mathematics in economics. I propose a remedy, namely, that economic theory should strive for the same degree of empirical success in modeling markets and economies as is exhibited by finance theory.
|Date of creation:||Oct 2004|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mirowski,Philip, 2002. "Machine Dreams," Cambridge Books, Cambridge University Press, number 9780521772839, September.
- Mirowski,Philip, 2002. "Machine Dreams," Cambridge Books, Cambridge University Press, number 9780521775267, September.
- A. L. Alejandro-Quinones & K. E. Bassler & M. Field & J. L. McCauley & M. Nicol & I. Timofeyef & A. Torok & G. H. Gunaratne, 2004. "A Theory of Fluctuations in Stock Prices," Papers cond-mat/0409375, arXiv.org, revised Sep 2004.
- Granger,Clive W. J., 1999.
"Empirical Modeling in Economics,"
Cambridge University Press, number 9780521662086, September.
- Granger,Clive W. J., 1999. "Empirical Modeling in Economics," Cambridge Books, Cambridge University Press, number 9780521778251, September.
- Gemunu H. Gunaratne & Joseph L. McCauley, 2002. "A theory for Fluctuations in Stock Prices and Valuation of their Options," Papers cond-mat/0209475, arXiv.org.
- A. Meltzer & Peter Ordeshook & Thomas Romer, 1983. "Introduction," Public Choice, Springer, vol. 41(1), pages 1-5, January.
- A. P. Thirlwall, 1983. "Introduction," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 5(3), pages 341-344, April. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2240. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.