Econophysics: finance, economics and physics

Abstract

This article examines the new science of ‘econophysics’ that utilizes physics models to explain economic and financial behaviour. First neologized in 1995, this innovative research methodology combines non-linear models, scaling laws, statistical mechanics and the Cauchy and Levy distributions to explain economic and financial behaviour more robustly than traditional economic and financial tools, which predominantly utilize linear models and Gaussian distributions. The conclusion of this article is that economics and finance will eventually absorb the powerful tools of econophysics as they continue to evolve as dominant social sciences.