Philosophy of econophysics

As its portmanteau naming implies, econophysics applies the concepts and methods of physics to economic systems. Given that economic phenomena are exhibited as emergent features of highly complex systems (e.g. financial markets), it is most often statistical physics that is employed (especially the theory of cooperative phenomena and of phase transitions), though other physics-based structural analogies have been made (for example, with the fibre bundles and connections of gauge theories and with quantum theory). Philosophical investigation of econophysics tends to focus on three key areas, each centring on issues of modelling: (1) realism and methodology; (2) the nature and explanation of economic features; and (3) emergence and complexity. These issues fall within philosophy of science rather than philosophy of economics because the phenomena econophysicists aim to reproduce (and explain) are patterns in data, rather than the underlying social behaviours that generated the data. Thus, though social behaviours generated the data, econophysics treats that data as if its source was just another complex natural phenomenon.

However, and somewhat paradoxically, a claim often made in support of econophysics is that, in being modelled after experimental physics, it offers a more physically realistic (and therefore methodologically superior) treatment of economic phenomena than does orthodox (‘neo-classical’) economics, which is based instead on deriving such phenomena as theorems from a priori (i.e. not derived from experience) principles (e.g. the axiom stating the perfect rationality of economic agents). That is, econophysics tends to be promoted as firmly rooted in economic reality (in the empirically observed facts, such as price changes, from which theories are then constructed) while standard economics is presented as dealing in ideal, unreal models. This often has an explicitly revolutionary flavour. As one popular econophysics textbook puts it, ‘econophysicists deny the very rules of the game on which mainstream academic research in economics is based’ (Challet et al. 2005: 14).