econophysics
and other fragments from The Statistical Mechanic




2004-12-22

I consider to write an econophysics paper with the title: Cointegration of multi-agent research
networks
with financial markets and in particular the Nasdaq stock market bubble.
It will be based on a simple search of the word market in abstracts of papers stored at xxx.lanl.gov
for the years 1998 - 2004 with the following results:
1998   25
1999   49
2000   70
2001  108
2002   94
2003   94
2004   79
Notice how the peak in publications coincides with the peak of the Nasdaq bubble (we do not need
to define this term, do we ?), if we assume a lag of approximately 12 months, which would be the average
time needed to concoct a paper, type it in LaTex and submit it. We can thus estimate viscosity effects
in a heterogenous multi-agent network. In the conclusion, the importance of  "need, greed and noise" 
in multi-agent research networks shall be discussed.


2004-12-23

In case you are (or want to become) a practitioner instead of academic econophysicist, you will
have to face the simple but non-trivial fact that competing 'agents' are at least as smart as you are.
After all, neuronal networks, cellular automata, quantum theory and everything else (?) you need
to know in order to trade options[pdf!], or the underlying markets, is available to everybody with
a PC and an internet connection.

But what about the hypothetical situation of dealing with an 'agent' of far superior intelligence and
knowledge, a truly superior being? This leads us to Newcomb's problem and fortunately there is
enough information available about it, so that I do not have to explain it here in detail. (The internet
is at least as efficient as any other market.) As Robert Nozick pointed out, about half of the people
confronted with this problem/paradox prefer the 1 box solution, let us call them type 1 personalities,
while the others are of type 2, opting for opening both boxes.

I have a hunch (but certainly no firm evidence) that type 1 people would have an advantage as traders,
while type 2 should be found more often among physicists. Does this point to the main difficulties of
econophysicists trying to describe financial markets and could one perhaps describe financial markets
as superior beings, which anticipate the next move(s) of the average trader (= you)?


2005-02-05

The intention of the Basel accords is to enhance the stability of the worldwide banking and financial system and it is
too early to estimate whether this goal will be achieved (or if it can be achieved). However, it is almost certain that
the Basel accords will increase the size of various risk control departments and there is some hope that a substantial
number of theoretical physicists and in particular econophysicists will find (or have already found) job opportunities
there. Thus a Basel for Dummies Physicists guide has been published recently, although the ultimate essay [pdf!] on risk
control has been written already some time ago. May the new theories and models of risk prevent us all from meeting
the black swan ...



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