Economic Fluctuations and Statistical Physics: The Puzzle of Large Fluctuations

We present an overview of recent research joining ideas of economic theory and statistical physics to try to better understand puzzles regarding economic fluctuations. One of these puzzles is how to describe outliers, phenomena that lie outside of patterns of statistical regularity. We review evidence consistent with the possibility that such outliers may not exist. This possibility is supported by recent analysis by Plerou et al of a database containing the sale price of each trade of every stock. Further, the data support the picture of economic fluctuations, due to Plerou et al., in which a financial market alternates between being in an “equilibrium phase” where market behavior is split roughly equally between buying and selling, and an “out-of-equilibrium phase” where the market is mainly either buying or selling.

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