8 Reasons, Why Econophysics Research Matters

No, I am not an economist. But interested in complex system research, I read about complexity economy an especially about Brian Arthur's work - obviously, as a technology provider, "The Nature of Technology". This is also one of the reasons why I read, and refer to, frequently Mark Buchanan's "The Physics of economy" blog - this weeks post what has "econophysics" achieved?

I bullet list the 8 points he selected: Physicists have
  • helped to establish empirical facts about financial markets - that the probability of large market returns decreases in accordance with an inverse cubic power law, ... patterns like the self-similar structure of market returns, .....
  • identified links between markets and natural phenomena - like post market crash shocks similar to earthquake aftershocks ...
  • helped to develop more realistic models of markets - like computational models of heterogeneous adaptive interactive agents - through the study of the minority game 
  • revealed quality features of markets; for example that the key determinant of market dynamics is the diversity of market participant's strategic behavior
  • that a key variable of driving booms and busts is the amount of leverage used by financial institutions
  • shown, that too much risk sharing in a network of institutions can decrease stability
  • shown, that completeness brings with it inherent instability 
  • developed a network measure called DebtRank which aims to cut through network complexity and expose the real riskiness of any particular institution. I wrote about this in Analogies, Metaphors and Big Problems
In general, and this is why I write this here, innovation is often the result of a technology transfer - a transfer of knowledge from one sector to another.

And the other aspect, we are interested in: you look into a model and see something that is counterintuitive. Like the toxicity of the most complex credit derivatives - in the best sense their introduction ignored Innovation Risk.