Scale invariance and universality in economic phenomena

This paper discusses some of the similarities between work being done by economists and by computational physicists seeking to contribute to economics. We also mention some of the differences in the approaches taken and seek to justify these different approaches by developing the argument that by approaching the same problem from different points of view, new results might emerge. In particular, we review two such new results. Specifically, we discuss the two newly discovered scaling results that appear to be ‘universal’, in the sense that they hold for widely different economies as well as for different time periods: (i) the fluctuation of price changes of any stock market is characterized by a probability density function, which is a simple power law with exponent −4 extending over 102 standard deviations (a factor of 108 on the y-axis); this result is analogous to the Gutenberg–Richter power law describing the histogram of earthquakes of a given strength; (ii) for a wide range of economic organizations, the histogram that shows how size of organization is inversel