Similarities and differences between physics and economics

In this opening talk, we discuss some of the similarities between work being done by economists, and by physicists seeking to contribute to economics. We also mention some of the dierences in the approaches taken, and justify these dierent approaches by developing the argument that by approaching the same problem from dierent points of view new results might emerge. In particular, we review some recent results, for example the 1nding that there are two new universal scaling models in economics: (i) the 3uctuation of price changes of any stock market is characterized by a PDF which is a simple power law with exponent 4 that extends over 10 2 standard deviations (a factor of 10 8 on the y-axis); (ii) for a wide range of economic organizations, the histogram that shows how size of organization is inversely correlated to 3uc- tuations in size with an exponent ≈ 1=6. Neither of these two new laws has a 1rm theoretical foundation. We also discuss results that are reminiscent of phase transitions in spin systems, where the divergent behavior of the response function at the critical point (zero magnetic 1eld) leads to large 3uctuations. c � 2001 Published by Elsevier Science B.V.