Eric Weinstein: What Math and Physics Can Do for New Economic Thinking

Welcome to our video series called "New Economic Thinking." The series will feature dozens of conversations with leading economists on the most important issues facing economics and the global economy today.

This episode features Institute for New Economic Thinking grantee Eric Weinstein talking about how math and physics can help foster new economic thinking. As Weinstein points out, while many of the mathematicians and software engineers on Wall Street failed when their abstractions turned ugly in practice, there are a number of physicists and mathematicians who have applied used the empirical disciplines of their profession to help refine many problems that have bedeviled traditional mainstream economics.

In this interview, Weinstein explores many creative ways that physics and more sophisticated forms of math can be used to rescue economics from itself and restore its now tarnished reputation.

[JesseMaurais]

17:24 is an amazing quote.

"I've never noticed physicists to be humbled, but I believe that the physical world has disciplined them to recognize that if they don't wish to look foolish it's best to learn to partition their questions so that they only ask the questions which are robust to the errors within any given theory."

[svalbard]

For some reason, I laughed when the interviewer said "..can you give me a little information about the evolution of your own thinking on this?" (2:20) then the shot showed a slow barge putting up the river.

[menasir]

the comments section is on fire... and extremely informative. thanks for the valuable comments

[ollielon]

The problem with economics is as follows: many assumptions are made, then mathematical models are created for these assumptions. That's not how science is supposed to work. A true science needs to test their assumptions, they need to experiment. Based on the results, they create mathematical models that explain the phenomenon.

[fractalnomics]

I study fractals and am an economist. I have modelled the fractal and found the economy grows and develops (and much more) as a fractal. My model also corresponds with cosmology observations and conjectures. I am about to publish on quantum foundation problems; I have found they are all problems of the fractal. Understand the fractal, understand the universe.

[antextra]

My new favorite video! Wow. Great stuff. I love the anology of economics to politics, as,
Astronomy to astrology.
Soon they will be sepperate, Bitcoin will change the paradigm so drastically, we will wonder how we survived before. The future is bright, very bright!

[farragin]

This is great! Very instructive and thought-provoking. It was especially nice to see someone argue that the problem isn't mathematics but rather 'bad, crude' mathematics. Still it would be great if someone could explain, maybe Eric himself, why Gauge Theory is a possible tool for making Reflexivity mathematically tractable. I gather that endogeneity is the key? Hence the invariant Lagrangian? That is, indeed, very elegant, but I was trying to work out the implications.

[GrantLenaarts]

genius.
So minds are influenced by the market and are dynamic.Does this mean perfect price discovery is in question ? or are you suggesting many states of stability are possible ? sounds like multiple attractor systems.

[agreen]

I always found it weird after Evergreen blew up and I found out about Bret, and then later Eric, that Eric was suddenly "thrust" into the spotlight, in my view anyways.

Now I'm finding out he's been out there for years. I wish I'd known sooner!

[joshuageorge]

I believe Austrian economics is based on harmonic analysis.

[ChatGPT]

The biggest problem though is that the core CPI index excludes goods with high price volatility, such as food and energy. This measure of core inflation systematically excludes food and energy prices because, historically, they have been highly volatile and non-systemic. This is a substantial piece of the pie for citizens below the poverty line and even an average wage.

[joshuageorge]

WEALTH is accycrm W-weather cycles theory(planets) E-economics A-accounting L-finance T-data science H-health and physical activity.

[joshuageorge]

I plan to work in financial sector after will studying economics.

[buenobus]

One worry I have is that the usage of formal tools in economics leads theorists to see economics as a discipline that is divorced from normative, historical, and ethical considerations. At the end of the day, every economic theory implicitly has a set of normative assumptions it makes not only about the nature of human agency but even of what constitutes 'utility'. Focusing more on math and less on history also is problematic because economies do not exist in vacuum but have histories. Economics is increasingly taught less in conjunction with political theory and history classes and risks becoming a skeleton with no flesh.

Despite these concerns, here are two prominent examples of famous economists modelling economic phenomena off of theories in physics. It remains to be seen how sensible this approach really is though...

(1) Adam Smith's 'gravity model of price' inspired from Newton. The following is a passage from 'The Natural Origins of Economics' by Margaret Schabas:


"Perhaps the most obvious example, one noted by numerous scholars, is Smith’s figurative use of gravitational attraction in his treatment of market prices. He draws an explicit contrast between the observed price in the marketplace and the “natural price” to which “the prices of all commodities are continually gravitating” (Smith 1776/1976, 1:75; see also Fiori 2001). While the analogy cannot be pushed too far, it does hold for several features of Smith’s schema. One feature is the attribution of market forces, which are by their very nature only inferred (from their effects on prices). Newton maintained the same about the occult force of gravity, that it could only be inferred (in this case from its effects on bodies). Another feature is that the market forces are central. That is, under the influence of these ever-present forces, a price will always tend toward its natural level, whether it is currently above or below it. Newton similarly maintained that, while bodies on earth appear only to descend under the attractive force of gravity, the fact of the matter is that those bodies are attracted to the center of a larger body and, therefore, could just as easily be conceived of as ascending. A third feature is the imputation of uniformity to all market forces. Newton similarly maintained that both the terrestrial and the celestial realms are subject to the same universal force." (Schabas, 2005, p. 88).



(2) The work of the 1st Nobel Prize-winning economist Jan Tinbergen and the advent of 'Econophysics', a broader 20th-century movement to model economics explicitly in physical terms, rather than simply using analogies from physics as in Smith. One historian wrote:

"Tinbergen used the formalism of Lagrange and Hamilton to deal with problems of dynamics. He was interested in dynamics because he aimed at a socialist economic policy. He succeeded by translating problems of economic policy into optimal control problems, and this enabled him to make use of Hamilton’s formalism. Because of his background in physics he was familiar with this formalism. It shows exactly when one may speak of a dynamic system." (Marcel Boumans, 'Paul Ehrenfest and Jan Tinbergen: A Case of Limited Physics Transfer', p. 132).

[joshuageorge]

economic toolkit needs to be fixed not manipulated. Totally agree with statics need for inverse regression analysis of shot SIR statistics.

[bittram]

Eric is driving a potent narrative. A chance to shine light on the cockroaches and have an honest discussion about applying mathematics to a stagnant discipline that is economics. Sprinkle in some game theory and programmable money from emergent properties of digital assets like bitcoin and we can fix the monetary system.

[ful]

The problem is not math, the problem is uncertainty and believe that math can eliminate it. 

[joshuageorge]

harmonic analysis used quantum fractal calculus.

[ichtube]

Questions that are robust within the errors of a given a theory, eh?

[AnaVerona_]

Boston Comisionary? Fishering shell? Can someone provide more info towards that? I find that interesting.