Mathematical Digest

Short Summaries of Articles about Mathematics
in the Popular Press

"The physics of the trading floor," by Mark Buchanan. Nature, 3 January 2002.

The new subject of "econophysics" deploys statistical techniques used for understanding large data sets in physics in order to model financial markets. They physicists working in this area have found that quite simple models produce results that mirror market behavior fairly well. In particular, these physicists have conjectured that financial systems are captured by "power law models." In these models, the overall behavior of the system is not influenced much by the individual entities (be they particles or market traders) but are greatly influenced by the global dynamics of the system. "[I]f the power-law conjecture is correct," Buchanan writes, "market models need only consider a few crucial details of traders' behaviour, leaving out many economic variables." Many economists remain skeptical about the econophysicists' claims.

--- Allyn Jackson