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Number 395, October 7, 1998 by Phillip F. Schewe and Ben Stein
ECONOPHYSICS is the application of physics techniques to economics problems. Like a collection of electrons or a group of water molecules, the world economy is a complex system of individual members (in this case, countries) that interact with each other. In a situation that many experimental physicists would surely envy, the world economy produces an incredible amount of data--one year of US stock-exchange transactions results in 24 CD-ROMs of data. These data provide the opportunity for extensive statistical analyses which can lead to a better understanding of the behavior of these complex systems. In an earlier study of business firms (Stanley et al, Nature, 29 Feb. 1996), physicists and economists found that the probabilities associated with observing a given growth rate for a firm could be described with a single mathematical function for firms of all types and sizes (from sales of $100,000 to $1 trillion). Furthermore, they found that the width of the curve showing the probability distribution follows a "power law,"in which the width is proportional to the firm size raised to a power of approximately 1/6. Now, a Boston University-MIT physics team (Youngki Lee, Boston University, 617-353-8051) collaborating with a Harvard economist (David Canning, 617-495-8401) has found the same universal patterns and power law for the fluctuations in the growth rates of the gross domestic products (GDP) of 152 countries from 1950-1992. (Lee et al., Physical Review Letters, 12 October 1998.) These models raise the exciting possibility that complex human organizations can be studied with methods and concepts developed in statistical physics. (Amaral et al., Phys. Rev. Lett.,16 Feb. 1998.)
THE PHYSICS OF FLOCKING. Studying one of the more remarkable examples of collective behavior, scientists at IBM and the University of Oregon have developed a physics- based theory of how a group of birds manages to move together as a single unit, even if the individual birds make frequent misjudgments and can only see an extremely small fraction of the other birds in the flock. In their model, the researchers capitalized on similarities between certain features of flock motion and several phenomena in physics. Like a group of tiny bar magnets, the birds in the flocking model line themselves up in the same direction by interacting with their closest neighbors. Like dust particles in a fluid, nearby birds may soon find themselves far apart. Like parcels of hot material spreading their heat through the process of convection, birds spread information about the direction which they are moving by circulating themselves through the flock. By incorporating the well-developed mathematical descriptions of these processes in the model, and plugging in typical values of such parameters as how fast real flocks move in the air, Tu and Toner came up with realistic predictions of such things as how densely the birds are packed together in certain situations and how this density fluctuates. (John Toner and Yuhai Tu, Physical Review E, October 1998; more at www.aip.org/physnews/preview)
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