Farmer, Shubik, and Smith reply: We titled our article “Is Economics the Next Physical Science?” because we are interested in the wide variety of questions of organization that have traditionally concerned economists, but that might also be well formulated as physics problems. The existence of such interesting problems does not presume that human behavior is mechanical. Our article emphasized two major observations that we think provide opportunities for a physical point of view.
First, we live in an institutional world. Without regard to the degree of mechanism in people’s behavior, institutions are by their nature mechanistic, and their mechanism can be treated even with relatively modest conceptual advancement from what physics already does well. Much of current econophysics, including some of our own work, is based on explicit models of institutional dynamics that have been omitted from more mainstream economic research, but that can be shown to predict strong regularities in price formation or other economic processes.
Second, the assertion that people are too irregular to be treated mathematically does not follow from the failure of past attempts to do so. The modeling of institutional process is as interesting for its limitations as for its successes, precisely because the regularities left unexplained by pure process models (which we have characterized as “zero-intelligence” models) are potential mathematical regularities of behavior. Readers will judge whether they prefer quantitative, predictive, falsifiable theories to the 19th-century narrative mode of description, but scientific description clearly provides modes of belief change that narrative does not.
