Berlin 2015 – scientific programme

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AGjDPG: Arbeitsgruppe junge DPG

AGjDPG 1: Tutorial: From spin models to macroeconomics (SOE, DY, jDPG)

AGjDPG 1.1: Tutorial

Sunday, March 15, 2015, 16:00–16:50, H 0104

Economics in a nutshell, for physicists — •Sylvie Geisendorf — ESCP Europe Berlin

The talk explains why and how the economic mainstream, the theory of neoclassical economics, is based on the idea of Newtonian physics. It also discusses why a real Newtonism would probably have been a good idea and where economists deviate from it.

Although modern economists rarely refer to physics, economic theory is based on Newtons idea of universal gravity. Following Newtons discovery, physics became an exact science with rigorous mathematical descriptions. In physics, Newton marked the beginning of the era of rational mechanics. Society was fascinated by Newtons insights and economists based their theory on classical mechanics with the explicit aim to make economics a rational science as well. But instead of adopting Newtons laws of motion they employed the simplified principle of general maximization. Whereas the laws of motion name the forces acting in a system, optimization calculus only deduces the final outcome. Even in physics, the realization of global minima or maxima is only possible under specific conditions. In economics, where actions of bounded rational agents have to be considered, these conditions are even rarer. The talk argues that a real Newtonian approach could have moderated the current lack of contact with reality, economic theory displays, and could have facilitated the necessary transition to an evolutionary theory of the economy.