Mandelbrot, Financial Markets and the Origins of "Econophysics"

TL;DR

The paper traces the origins and evolution of econophysics through Mandelbrot's methodological stance: foreground empirical regularities, confront data visually, and use toy models to organize robust facts before axiomatic closure. It connects Mandelbrot's insights on heavy tails, volatility clustering, and scale invariance to later developments in multifractality, multiplicative chaos, and rough volatility, highlighting endogenous mechanisms that can generate large market moves. It expands the scope from financial markets to broader economic regularities, showing power laws in wealth and firm sizes and introducing the granularity hypothesis as a route to macro volatility driven by a few large agents. Overall, the work advocates a disciplined, empirically grounded integration of physics concepts into economics, acknowledging both the practical value and limits of the Mandelbrot legacy for understanding crises and macro dynamics.

Abstract

This text revisits the origins of econophysics through the figure of Benoît Mandelbrot, not as the father of fractals, but as the instigator of a distinctive scientific posture. The guiding thread is methodological: accept the stubborn features of the data and use models as instruments for intuition rather than as axiomatic certificates of truth. In this perspective, scaling, intermittency and extremes are not peripheral imperfections around a well-behaved equilibrium; they are the very texture of economic and financial fluctuations. This naturally shifts attention from exogenous narratives to endogenous dynamics: interactions, feedback loops, and collective amplification mechanisms that can make systems intrinsically {\it fragile}. We argue that the importation of concepts from statistical physics -- criticality, disorder, emergence, multiplicative cascades -- should be read not as an artificial transposition but as a candid attempt to look for generic mechanisms compatible with empirical regularities observed across scales, from markets to macroeconomic aggregates.