Methods

Why Theoretical Physics

The study of a social system is usually complex and may seem theoretically arbitrary. The study of such systems is usually confined to a series of “rule of the thumb” observations and do not (in general) result from a disciplined framework. In this respect, the study and successes within theoretical physics are important to us because:

1. The systems which are studied in physics are considerably simpler than those studied within social sciences. Such systems can often be studied as part of delicately prepared experimental arrangements. The experiments which are conducted in Physics are therefore mostly repeatable (within an experimental error). As a result, Physics has been far more successful in establishing the basic laws which govern the evolution of macroscopic and (for the large part) microscopic objects. The properties and behaviour of non-linear systems are understood within a set of powerful tools such as approximation and perturbation theory (in addition to the numerical work in lattice gauge theory and General Relativity). Complex solutions in physics have been shown in many cases to result from perturbative modifications of the exact solutions. A great deal of knowledge has been assembled about the relationships between the simple and complex systems in physics. In contrast, the problems considered in social sciences tend to be highly non linear and interactive (far more complex than those in physics). By considering how simple methods are adopted by complex problems in physics, it is possible to learn about the relationship of the complex social problems to those of the simpler physical problems.
2. Our goal was to reach an objectively derived framework which constitutes risk management, in order to show how risk should be appropriately measured and why risk management should be used as a modern response to business planning, goal delivery and governance. We felt that the recent development of statistical responses to risk measurement and the degree of biased opinion that permeates many risk management forums does not provide a sound basis upon which to conduct risk management research. Rather, the discipline that nature imposes upon physicists to document its laws was a more attractive starting point for an enduring investment in risk management and measurement design. Furthermore, the successful execution of this goal, RiskAnalytica’s framework, would come naturally equipped with the computational techniques available to physicists to solve for complexity.