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Dear Mr. Soros,

Several leading economists, including several Nobel Prize winners, have recently made their dissatisfaction with their own field clear. In doing this they have confirmed the same criticisms of the Neoclassical Paradigm that econophysics researchers have been making for more than a decade. Early on, they have warned of the pitfalls of mechanical analogies from the 19th century, which current economic theory is built on. Physicists have pointed out that “Economy needs a revolution” and diagnosed the lack of robustness of the financial system, in some cases before the recent crisis (see attachments). Their criticism concerns the pillars of established economics:

- Markets are not efficient by nature.
- Economics can be driven far from equilibrium (as bubbles and crashes illustrate).
- The system behavior is dominated by interactions between the market participants, and is hard to regulate.
- Network interactions can change the behavior of markets dramatically.
- Science needs to be driven by empirical data, not ideologies and preconceived mathematical formalisms.

Their new approach allows us to understand markets as ecosystems, in which extreme events are the result of systemic instabilities. This is based on the theory of complex dynamical systems, considering randomness and strong interactions as fundamental features.

The financial crisis has not only created huge financial losses. It has damaged the economic system to an extent that several countries are at the verge of bankruptcy, and social systems have become dangerously vulnerable. The problems we have seen may just be the beginning of a larger crisis. The situation may totally get out of control, endangering social peace and cultural achievements.

It may interest you that the European Union is currently building scientific “Flagships” to address the grand challenges of the future. With a budget of 100 million EUR per year, over a period of ten years, they want to foster unprecedented scientific discoveries and radical innovation by transdisciplinary research. The FuturIcT flagship initiative aims at developing a realistic theory of economics and concepts for a sustainable world, involving scientists from a large range of fields. Hundreds of experts in mathematic, physics, economics, sociology, psychology, ecology, computer science, etc. will be working together to combine the best of human knowledge. We would like to invite you to be a galleon figure of this Flagship.

The FuturIcT flagship fits perfectly the goals of your Institute of New Economic Thinking. We hope that you can join us, and that in any case you will add econophysicists to the advisors of your institute. Joining forces could largely accelerate the required paradigm shifts and the development of solutions to the challenges humanity is facing.

Sincerely yours,

Jean-Philippe Bouchaud, Doyne Farmer, Dirk Helbing, Imre Kondor, Rosario Mantegna, Matteo Marsili, and Yi-Cheng Zhang.

Source: Econophysics Forum