Using physics to anticipate economic risk

Boston Globe : A Boston University physicist, H. Eugene Stanley, has spent the past 20 years in a field he calls “econophysics": using physics tools to analyze the economy. In a paper published last week in the Proceedings of the National Academy of Sciences, he and his colleagues address the problem of credit ratings and propose a better model for predicting fluctuations, writes Carolyn Johnson for the Boston Globe. “Many economists will tell you that the chances of something really big and bad happening are really, really small,” said Stanley in Science News . He contends, though, that catastrophic events—such as Lehman Brothers filing for bankruptcy in 2008—aren’t exceptional but inevitable. Stanley is working to produce a mathematical law to better calculate overall risk so that investors and regulators can prepare for those rare devastating events that can leave the entire economic system vulnerable.