Physical Society Colloquium

Novel Statistical Physics Approaches to Understanding Economic Fluctuations

Eugene Stanley

Department of Physics
Boston University

Recent analysis of truly huge quantities of empirical data suggests that classic economic theories not only fail for a few outliers, but that there occur similar outliers of every possible size. Specifically, if one analyzes only a small data set (say 10⁴ data points), then outliers appear to occur as “rare events.” However, when we analyze orders of magnitude more data (10⁸ data points), we find orders of magnitude more outliers — so ignoring them is not a responsible option, and studying their properties becomes a realistic goal. We find that the statistical properties of these “outliers” are identical to the statistical properties of everyday fluctuations. Two unifying principles that underlie much of the finance analysis we will present are scale invariance and universality.

Recent disasters ranging from financial “shocks” to large-scale power and terrorists attacks dramatically exemplify the fact that the most dangerous vulnerability is hiding in the many interdependencies among different networks. We quantify failures in interconnected networks, and demonstrate the need to consider mutually dependent network properties in designing resilient systems.