Books: Could science help us to avoid another economic crash?

The Physics of Finance 

by James Owen Weatherall

by Tom Chivers

A molecule of gas doesn’t have a temperature, or a pressure. It’s just a point that moves at a particular speed, depending on how much energy it has. But when you have a million billion or so of them in a sealed box, their collective behaviour can be explained in those terms: even though each individual particle is moving at random, you can predict with extraordinary accuracy how many of them will, for example, hit the walls of the box at any one time. Individually random behaviour creates a predictable group.

At the heart of James Owen Weatherall’s book is the idea that the economy can be described in similar terms. An individual person is not an economy and has none of the characteristics of the economy. But a million people acting individually create an economy – and, says Weatherall, the history of financial thinking has been driven, in part, by physicists and mathematicians, looking for the rules that allow an economy to be predicted, as Boyle’s Law mathematically describes pressure and temperature, and predicts the aggregate behaviour of atoms. Newton might have said, “I can calculate the movement of the stars, but not the madness of men”, after losing a fortune in the South Sea Bubble, but his successors in the world of physics think differently.
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The Physics of Finance

• by James Owen Weatherall
• 288pp, Short Books t £11.99 (PLUS £1.35 p&p) 
• Buy now fromTelegraph Books (RRP £12.99, ebook £8.92)

Read more: www.telegraph.co.uk/