and other fragments from The Statistical Mechanic

2004-12-22

I consider to write an econophysics paper with the title: Cointegration of multi-agent research

networks with financial markets and in particular the Nasdaq stock market bubble.

It will be based on a simple search of the word market in abstracts of papers stored at xxx.lanl.gov

for the years 1998 - 2004 with the following results:

1998 25

1999 49

2000 70

2001 108

2002 94

2003 94

2004 79

Notice how the peak in publications coincides with the peak of the Nasdaq bubble (we do not need

to define this term, do we ?), if we assume a lag of approximately 12 months, which would be the average

time needed to concoct a paper, type it in LaTex and submit it. We can thus estimate viscosity effects

in a heterogenous multi-agent network. In the conclusion, the importance of "need, greed and noise"

in multi-agent research networks shall be discussed.

2004-12-23

In case you are (or want to become) a practitioner instead of academic econophysicist, you will

have to face the simple but non-trivial fact that competing 'agents' are at least as smart as you are.

After all, neuronal networks, cellular automata, quantum theory and everything else (?) you need

to know in order to trade options[pdf!], or the underlying markets, is available to everybody with

a PC and an internet connection.

But what about the hypothetical situation of dealing with an 'agent' of far superior intelligence and

knowledge, a truly superior being? This leads us to Newcomb's problem and fortunately there is

enough information available about it, so that I do not have to explain it here in detail. (The internet

is at least as efficient as any other market.) As Robert Nozick pointed out, about half of the people

confronted with this problem/paradox prefer the 1 box solution, let us call them type 1 personalities,

while the others are of type 2, opting for opening both boxes.

I have a hunch (but certainly no firm evidence) that type 1 people would have an advantage as traders,

while type 2 should be found more often among physicists. Does this point to the main difficulties of

econophysicists trying to describe financial markets and could one perhaps describe financial markets

as superior beings, which anticipate the next move(s) of the average trader (= you)?

2005-02-05

The intention of the Basel accords is to enhance the stability of the worldwide banking and financial system and it is

too early to estimate whether this goal will be achieved (or if it can be achieved). However, it is almost certain that

the Basel accords will increase the size of various risk control departments and there is some hope that a substantial

number of theoretical physicists and in particular econophysicists will find (or have already found) job opportunities

there. Thus a Basel for Dummies Physicists guide has been published recently, although the ultimate essay [pdf!] on risk

control has been written already some time ago. May the new theories and models of risk prevent us all from meeting

the black swan ...

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