"The reason physicists are especially good, or at least can
be especially good, at financial modeling is not that markets
are somehow subject to physical laws. Nor is it that
physicists have developed some detailed theory of investor
behavior. The connection is at a higher level than that.
Physicists have a distinctive way of thinking about mathematical
problems. They are experts in approximative thinking, in building
toy models and effective theories. This sort of reasoning is just
what is needed to take a problem that appears hopelessly complex
and find the simplifying assumptions and idealizations necessary
to make it tractable. And it is for this reason that physicists
have made, and can continue to make, significant contributions to
finance. In fact, if Wall Street banks want to use mathematical
models more effectively, they would do well to learn to think of
models the way physicists do."