Wednesday, December 06, 2006

Economics and physics

I have already written about the not so happy consequences of physicists' forays into the economic realm ('econophysics'). The last several weeks has brought us several interesting run-ins between these fields. The latest episode started with Robin Hanson's grouse:

Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted clockwise, and reporters will quote them unskeptically, saying "Isn't that cool!" But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to "balance" their story.

He has already received several responses, including one from a physicist: Sean Carroll. If you have some free minutes, start from there and work through the links.

Remember I linked to Chris Hayes' article on what else one learns in an economics course? This led to several interesting discussions, one of which made this analogy:

... While [chemistry and physics are] historically separate disciplines, there's a sense in which chemistry can be thought of as a subset of physics -- we understand chemical reactions on a deep level because we understand the physics of how subatomic particles interact. There is knowledge that's a part of chemistry that wouldn't conventionally be thought of as part of physics, but it can be thought of as studying aggregated interactions that are themselves part of physics. To the extent that chemistry is supported by valid theory, the theory rests on our understanding of physics. [...]

... [I]t appears obvious to me that a solid theoretical underpinning for economics would have to come from psychology; the relationship between economics and psychology is precisely analogous to the relationship between chemistry and physics, in that the first is the study of aggregated behavior (in a particular context) of elements whose behavior is described by the second. And this is a problem for those claiming that important new knowlege is likely to come out of manipulation of mathematical models in economics, because psychology isn't currently in a state where it can provide the sort of solid predictions about human behavior that would be necessary to support those models. In factual situation X, if you ask an academic psychologist "What will person Y do?" the honest answer will be "Beats me, could do Z, could do something else, depends." But economic theory depends on claims that "In situation X (prices go down) people generally will do Z (buy more)," even though those claims aren't dependent on any solid theory of human behavior.

Finally, Mark Thoma has been grappling with wild claims emanating from the econophysics zone: here and here. This kind of 'attacks' from outside has made Mark defend his turf, examine what economists can learn from evolutionary theorists, and re-examine the methodological foundations. As you can guess, Mark is one of my favourite econ bloggers.