Interactions in economic models: Statistical mechanics and networks

Abstract

During the last decade, the interaction based models have received increased attention in economics, mainly with the recognition that modeling aggregate patterns of behavior requires viewing individuals in their social environments continuously in interaction with each other. The existing literature suggests that statistical mechanics tools can be useful to model interactions among economic agents. In addition to statistical mechanics, the network approach has also gained popularity, as is evident in the rising attention attributed to small world models and scale free network topologies. These developments point to the fact that interdisciplinary research in economics, mainly using the tools of physics has accelerated to a great extent. In this paper, we review the analogies made between molecules and economic agents in statistical mechanics models, as they are utilized in economics literature. We perform a simulation study by using the small world model and statistical mechanics, to demonstrate the influence of network structure in the spreading of organizational forms, in particular the research collaboration decisions of firms.