The intersection of the physical and statistical paradigms for business analytics has become a very challenging area in the last two decades since the introduction of econophysics and sociophysics. For a long time, the techniques of physics were successfully applied to many scientific fields. Physics provides very important tools to understand complex systems of any kind, e.g., biophysics, geophysics, etc. However, the penetration of these techniques to the social and business spheres was not straight forward.
Statistics has been an inseparable part of social science since its inception, and it actually was understood only in a social context for centuries. In this broad sense, statistics was and remains the only available legitimate quantitative descriptive tool in the social sciences. It provides the necessary methodology, from hypotheses about mechanisms of data generation to data collection and modeling, and interpreting results.
At the same time, there are no direct physical processes involved in the investigation of social phenomena. Therefore, sociologists and business analysts have operated historically without the aid of techniques from physics. In what sense is physics helpful in this area densely populated by statistics, taking into account a boom in sociophysics? What kind of relations between those sciences — cooperative or competitive — should prevail? As often happens, the merging of two camps (statistics and sociophysics) may create new important and unexpected results that will result in a new synthesis. [See also, "Statistical and physical paradigms in the social sciences", Model Assisted Statistics and Applications 4 (2009) 39-62.]
What is sociophysics? Physicists work with "complex systems" and have developed many powerful methodologies that allow theoretical physics to operate with extremely complex phenomena. Many objects in both physics and social systems are many–body dynamical systems in which elements interact with each other and exist under different external factors. Therefore, as it was realized, many significant developments in the physics of condensed–matter systems can be translated to social systems. Naturally, for business analytics the translation dictionary depends on industry and specific business problem. For example, in physics a set of particles, which interact with each other and exist under influence of different external fields, can be imagined (or "translated") as people, who connect (interact) with each other over social networks and word of mouth, and live under the influence of different types of marketing.
In the context of sociophysics, it is relevant to mention that econophysics uses concepts from statistical physics for financial systems. In particular, econophysics provides new insights into the behavior of financial markets. While financial systems can be considered as a part of social systems, econophysics stays separately as a new physical science. The term of econophysics was coined by H. Stanley in 1995 (en.wikipedia.org/wiki/Econophysics).
Sociophysics is clearly a developing area with many challenges still ahead. But what is already clear is that sociophysics can add extremely significant enhancements to business analytics in addition to traditional statistics — and even predict and explain facts that, maybe, look unpredictable.
This is the first blog of my series on sociophysics. In the next blogs I will discuss typical applications of sociophysics and the most important differences between sociophysics and traditional statistics.