Monday, 2 December 2013

Eric Weinstein: What Math and Physics Can Do for New Economic Thinking

Welcome to our video series called "New Economic Thinking." The series will feature dozens of conversations with leading economists on the most important issues facing economics and the global economy today.
This episode features Institute for New Economic Thinking grantee Eric Weinstein talking about how math and physics can foster new economic thinking. Check out the interview to see what Weinstein has to say about how these two disciplines can help create a revolution in economics.  Below is an introduction from interviewer and Director of Institutional Partnerships Marshall Auerback.  
After the economic meltdown of 2008, Warren Buffett famously warned, “beware of geeks bearing formulas.” But as this interview with Eric Weinstein illustrates, not all geeks are created equal. As Weinstein points out, while many of the mathematicians and software engineers on Wall Street failed when their abstractions turned ugly in practice, there are a number of physicists and mathematicians who have applied used the empirical disciplines of their profession to help refine many problems that have bedeviled traditional mainstream economics. Weinstein’s own history of using gauge theory to deal with the complex problem of calculating consumer price inflation accurately shows how physicists have successfully brought their science to bear on some of the thorniest problems in economics.
True, the Great Financial Crisis of 2008 was largely a failure of mathematical modeling and faulty statistical assumptions. But even more, it was a failure of some very sophisticated financial institutions to think like physicists. Models – whether in science or finance – have limitations. They break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didn’t understand their purpose – and didn’t care. It was a catastrophic misuse of science.
The solution, however, is not to give up on models. It's to make them better and more elegant. In this interview, Weinstein reveals many creative ways that physics and more sophisticated forms of math can be used to rescue economics from itself and restore its now tarnished reputation.

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