McCauley, Joseph L. (2004): What Economists can learn from physics and finance.

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Abstract
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, neoclassical 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.
Item Type:  MPRA Paper 

Institution:  University of Houston 
Original Title:  What Economists can learn from physics and finance 
Language:  English 
Keywords:  Nonequilibrium; empirically based modelling; stochastic processes; complexity 
Subjects:  C  Mathematical and Quantitative Methods > C0  General A  General Economics and Teaching > A2  Economics Education and Teaching of Economics 
Item ID:  2240 
Depositing User:  Joseph L. McCauley 
Date Deposited:  14. Mar 2007 
Last Modified:  19. Feb 2013 11:42 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/2240 