Forum

Cooperation with Business and Industry

During the general meeting 2003, it has been discussed, how to stimulate more interest on behalf of business and industry. Mr. Andreas Schaale has created the following list of relevant subjects:

Relevant subject areas in the Econophysics

1. Evaluation of the methods used up to now in the area Finance

Currently, the methods used by banking, insurances and in the asset management of enterprises reflect in no way the knowledge accumulated in science, in particular its frontiers (Elliott Waves, chart analysis, up to "real" astrology). This subject should have high priority. Also apparently "safe" approaches, how the portfolio theory and the Black-Scholes formula would have to go on the test bench of modern physics.

2. Valuation of Assets

Currently, the procedures used for the valuation of enterprises, real estates etc. are very unsafe. In practise, there is the method of the Discounted Cashflow, but it is often not sensibly used, because the data situation does not allow this. An academically well-founded approach to this problem would be of great importance for the whole finance sector. Remark: According to Alan Greenspan, more than 70% of all enterprise transactions produce losses.

3. Market Models and Market Simulations

In the past, models were developed for different markets. Unfortunately, there are some problems: The availability (or absence) of fundamental data of these markets and their unreliability, furthermore the fact that markets can show so-called non-linear behavior. Another related subjects are the phase transitions in markets, even though they can be already simulated, with some agent-based and other models. A practical application would be systems that can warn of extreme market positions.

4. Process Modeling

The mathematical description of production processes and value added chains is of very high interest, because it would support the overloaded management in controlling and planning of procedures in enterprises. A conceivable start would be, e.g., the application of Monte Carlo methods.

5. Microscopic Description of Markets and Consumers

The understanding of consumers is of very high importance for markets. Up to now, there are primarily insufficient, verbal models of the consumer behavior. An application of agent-based models in this area would be an essential step ahead. This approach is promising for the description of consumers in economic and communicative respects. The consumer market becomes essential for financial decisions, advertisements, and the understanding of the role of peer groups.

6. Internet and Communication

The search for information on the Internet is in general one of the most important subjects. E-commerce is basically determined by searches (more than 50% of all shopping processes begin on the Internet with a search inquiry). Current methods used by most search engines are still very underdeveloped, especially concerning the quantitative evaluation of relevance. Also the subject of content clustering and extraction of information is important to catch up, because there are some charlatans in this area on the market.

Frank Schweitzer (Translation: P. Felten and D. Helbing)

2003-08-27