Physicists Barge Inward On Economists. Predictions Ensue

From Cosmos Magazine:

A radical simplification of economical forecasting models produces interesting, if controversial, results. Michael Lucy reports.

Deep downward every physicist believes that, if they alone had a spare 6 months, they could seat the messy human scientific discipline of economic science on a to a greater extent than precise together with rational footing. Influenza A virus subtype H5N1 squad of Italian physicists is trying to brand the daydream a reality, but they are finding the chore takes a niggling longer.

“We get got been working on this for simply about 6 years now,” says Andrea Tacchella of the Institute for Complex Systems inward Rome, the outset writer of a paper on the research published inward the mag Nature Physics.

Led past times Luciano Pietronero of Sapienza University of Rome, the researchers used publicly available export information to make five-year gross domestic production (GDP) forecasts for countries simply about the world. The results are on average 25% to a greater extent than accurate than those of the International Monetary Fund.

The field of economical complexity studies the economic scheme amongst tools from the discipline-straddling scientific discipline of complex systems. It involves webs of large numbers of elements (such every bit atoms, or animals or companies) that interact amongst each other inward complicated, non-linear ways. These interactions create coherent structures together with “emergent” properties.

Seen inward this way, economic science bears a human relationship to the menses of a turbulent fluid or the demeanor of a traffic jam, together with mightiness – simply mightiness – hold out described past times a relatively uncomplicated ready of rules.
The team’s aim, they write, is a “fundamental rethinking of economical modelling lid goes inward the direction of a to a greater extent than scientific together with less dogmatic approach”.

Influenza A virus subtype H5N1 country’s economic scheme is a complex organization par excellence: millions of private humans interacting amongst each other inward a movable maze of possibilities together with constraints ranging from the physical availability of resources to pedagogy levels together with financial policies, all piece the province itself is furiously exchanging goods, services together with people amongst the residue of the world.

Traditional forecasting techniques mightiness endeavour to get got hundreds of these variables into account, but Pietronero’s squad instead aimed at radical simplification. They built a model amongst alone ii variables: the outset is the country’s electrical flow gross domestic product together with the mo what they telephone telephone “economic fitness”.

“Fitness is an indicator of how much a country’s export products are diversified, weighted past times how complex its products are,” says Tacchella. So, the broader the gain of products a province exports, together with the to a greater extent than complex they are, the to a greater extent than gibe it is deemed to be together with the to a greater extent than strongly its gross domestic product is probable to grow. (An extra non-linear snarl is added past times the calculation of the complexity of a product: it is determined past times the fitness of all the countries that make it.)

The results are sure enough promising. In 2015, the method correctly suggested the Chinese economic scheme would proceed growing strongly, when many other forecasts said it was headed for a abrupt slump. And retrospective role of the method revealed problem ahead for Brazil together with Russian Federation every bit early on every bit 2005, when the likes of Goldman Sachs were predicting they would hold out economical powerhouses of the twenty-first century....MORE

See also:
"Few things are every bit unsafe every bit economists amongst physics envy"

May 26, 2010
"WARNING: Physics Envy May Be Hazardous To Your Wealth!"
I had a similar, albeit intuitive rather than empirical, idea inward the June '09 transportation service " on Carbon Trading together with Traders":
...Just every bit an economist using the tools of scientific discipline (mathematics) doesn't brand economic science a science, carbon traders using the tools of markets doesn't brand carbon trading marketplace based....From the abstract at Physics arXive:...

June 3, 2015 
Economists don't get got "physics envy"

I listen all the fourth dimension that economists get got "physics envy". This doesn't appear fifty-fifty remotely true. I'm non sure whether "physics envy" way that economists envy physicists, or that economists desire to brand physics-style theories, or that economists want their theories worked every bit good every bit those of physicists. But none of these are true.

Reasons why economists don't get got physics envy include:

1. Economists brand a lot to a greater extent than coin than physicists.

2. Economists are treated every bit experts on practically anything. An economist tin verbalise almost why hipsters get got moustaches, together with instruct taken seriously. An economist tin verbalise almost which restaurants are the best, together with instruct taken seriously (Update: NO, I'm non proverb Tyler's majority is bad, I haven't fifty-fifty read it, together with thence HUSH). An economist tin verbalise almost politics, marriage, pop music, sex, race, or sports together with instruct taken every bit seriously every bit whatsoever skilful inward those fields. An economist tin verbalise almost how much progress physicists are probable to make, and quantitative rules for things, but otherwise are treated every bit simply ane to a greater extent than tribe of crazy nerds amongst their heads inward the aether....

So at that spot y'all go. 

Except for indicate 1.

If that physicist happens to hold out running a quant fund inward Greenwich fifty-fifty the richest economist inward history is a pauper past times comparison.