Just before the summer of 1997--a little more than a year ago--financiers were hailing the "Asian tigers" as economic miracles. From South Korea to Thailand, sustained annual growth rates sometimes exceeded 10 percent. Then in early autumn the bottom fell out. The economies in these countries went into a tailspin from which they have yet to recover. In fact, the impact of Asia's severe economic downturn has rippled across the entire globe, sapping economic growth in Latin America, adversely effecting an already desperate situation in Russia and even piercing holes in what experts thought was a bullet-proof economy in the United States.

Could this mess, which now threatens the global economy, have been foreseen? The answer may be yes-if we can develop more sophisticated models that rely on high-powered mathematics and theories of chaos and complex systems rooted in the study of physics.

The ICTP's School and Conference on the Mathematics of Economics, held between 31 August and 25 September, were not designed to address today's headlines. But the theories and models on the behavior of financial markets that were presented certainly had "an air of currency" that the organizers could not have anticipated.

As ICTP Director, Miguel Virasoro, recently noted: "The stock market is a non-linear system with an untold number of independent parameters. That makes it extremely difficult to model. Although the particulars are different, nature also consists of complex phenomena. Yet, scientists have not been shy about modelling those systems. Indeed models have long been accepted as legitimate tools for understanding everything from the micro-behavior of subatomic particles to macro-alterations in the biosystems. If we can build mathematical models for physics and biology, why can't we use similar skills to build similar models for economics?"

Brazilian-born economist José Alexandre Scheinkman, former chairperson of the Department of Economics at the University of Chicago and opening lecturer at the ICTP's Economics School, is somewhat less optimistic: "Although many aspects of stock market behavior resemble a chaotic system, I'm not convinced that a simple model can describe that system. One must bear in mind that stock market participants are constantly trying to learn the market's dynamics. And as they learn the dynamics, they change their behavior. This in turn changes the dynamics."

Regardless of the outcome of this discussion, the ICTP's School and Conference on the Mathematics of Economics have raised serious questions about the role that abstract tools and theories previously applied to complex natural phenomena may play in enhancing our understanding of financial systems, where very down-to-earth concerns for profit and loss are the driving force. In the process, fields once thought to be worlds apart--physics and economics--may have more in common than experts in either discipline ever thought possible.

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