Physics Meets Economics

In response to my blog on how George Soros made a billion in a day, my dad had posted his comment including the following line:
“Economics is too much for me! I find even the most advanced physics a lot easier!!”
My dad must be the rare person from the physics domain to say that. Sheldon's (of The Big Bang Theory TV series fame) response when asked by Penny if he knows economics is representative of how most physicists talk about other fields:
“I'm a physicist. I have a working knowledge of the entire universe and everything it contains.”

 Hell, there's even an interdisciplinary research field called econophysics! The term was coined by Eugene Stanley, to describe the large number of papers written by physicists in the problems of (stock and other) markets.

 You can imagine how deeply physics has tried to “infiltrate” economics by the fact that there are even terms like classical economy, quantum economy and quantum finance! (But before you get too carried away, note that those areas have had very limited success).

Not all economics/finance guys welcome this “intrusion”. As Chris House points out:
“(The physicist) might go on to conclude that, as a consequence of his superior mathematical and computational abilities, he should be able to enter economics and start contributing quickly and easily. He might also anticipate that he could easily adapt established models or techniques in physics to study economic phenomena and impress the profession...You will have to spend a lot of time acclimating to the subject and the path to actually making contributions will be long and difficult. In all likelihood, there are very few (perhaps zero) off-the-shelf models or techniques in physics (or engineering, or chemistry, ...) that will produce meaningful economic results.”

But physicist Mark Buchanan disagrees with House:
“Most of the (physicists) I know don’t believe they’re smarter than economists, or better mathematicians, nor do they think economics is somehow “easy.”...What the physicists DO believe, however, is that markets and economies are great examples of what scientists have come to call “complex systems” - systems of many elements (people, firms, etc.) with strong interactions between those elements which create webs of non-linear feedback. The elements learn and adapt, their interactions create “emergent” coherent structures and fluctuations at the collective level, and these structures then act back downwards to influence the behavior of the elements...In this sense, economic systems share a deep character with many physical or biological systems from the earth’s crust to turbulent fluids to ecosystems.”

Who is right? Will physics go the maths way to become an integral way of finance? Or will it be remembered as an example of the arrogance of physicists?

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