Quote from Thunderdog:
Perhaps we are speaking about different things? I thought you were referring to the physical sciences specifically, rather than just physical analogies generally. I'll readily go along with analogies, but I'm less convinced about using physics equations to explain human conduct. That's where it gets murky for me.
Sorry, I assumed that you understood that what we take are the analogy of the models, not the models exactly nor certainly not the domain of inputs (why would we even assume that the theory that models an apple falling has identical inputs to the analogous "newton model of markets" ?) Maybe it is I that don't understand what you are saying, because that objection is tautologous.
Look, the first scientific theory in the history of humankind was Newtons laws of motion, which showed
how gravity affects the motion of objects with mass. Later, people realized that the theory of the electromagnetic force was nearly identical to gravity, even though they sure look like totally different things. They are described by nearly identical equations! The EM model is almost exactly the same as the gravity model, except where you plugged in mass into the newton equation, you plugged in change into the EM model, where you plug in gravitational constant in Newtons model, you plug in the charge of the electron into EM model, where you plug in distance you still plug in distance, etc.
The point is that people reason by analogy from exact sciences to the less exact sciences. You can object that human behavior is not a science at all, but I argue that a mass of humans acting as agents on a large scale behave very much like a physical system - an emergent one. Not exactly, but trading is horseshoes and hand grenades on a first approximation. Newton inspired Maxwell, who inspired Einstein to make gravity look like Maxwell's theory!!! Positive feedback (this time feedback is abstract) in the advancement of the sciences at work, each building on each other.
The addition of feedback is what makes Newtonian trading models trade able. Feedback does not come from Newtonian concepts, but it does come from the sciences. For example, at the core of how a neuron in a human brain works is the concept of feedback.
nitro
PS The Black Scholes equation is the most blatant example of how physical models affect the design of market models
http://en.wikipedia.org/wiki/Black-Scholes
is a rehashed "market version and language" of the Heat Equation in
Physics:
http://en.wikipedia.org/wiki/Heat_equation
Feedback goes by the name "calibration" in option models.
