The Physics of Wall Street: a brief History of Predicting the Unpredictable

A New Manhattan Project 
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ties. In his theory, the incomparable quantities were the lengths of rul-
ers at different locations. His solution was to find a way to bring the 
rulers to the same location, and then just hold them up next to one 
another to determine their relationship.
But now think of the index value problem, which, at its core, in-
volves comparing different, apparently incomparable quantities. How 
can you make sense of the value of money to two different people, 
especially if they have radically different lifestyles? And how do you 
compare what might seem like a reasonable market basket in 1950 
to what would seem like a reasonable market basket in 1970, or in 
2010? these problems seemed insurmountable at first to Weinstein 
and Malaney. But in the context of the mathematical framework that 
Weyl and his successors had developed, at least one possible solution 
emerged. All they needed to do was figure out a way to take any two 
people — say, a lumberjack in 1950 and a computer programmer in 
1995 — and put them in the same circumstances so that they could di-
rectly compare their preferences and values. It was a strange thing to 
propose — after all, the conversation between the lumberjack and the 
programmer might be a little awkward — but from the point of view 
of Weyl’s mathematics, it was the most natural thing in the world. to 
solve the index number problem, Weinstein and Malaney argued, you 
need a gauge theory of economics.
one day, late in 2005, Lee Smolin received an unusual e-mail. It seemed 
to be about economics, which was unexpected, because Smolin didn’t 
know the first thing about economics. Smolin was a physicist. His 
work was, and continues to be, in a cutting-edge field known as quan-
tum gravity, which consists of people trying to understand how to 
put the two revolutionary, immensely successful innovations of early-
twentieth-century physics — quantum mechanics, which describes 
very small objects like electrons, and einstein’s theory of gravitation, 
which describes really big objects, like stars and galaxies — together 
into a coherent framework. this endeavor had nothing at all to do 
with economics. or so Smolin thought.
A few months earlier, Smolin had published an article in the mag-

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azine Physics Today, a semi-popular publication whose goal was to 
explain new developments in physics to physicists who weren’t nec-
essarily experts in the given area. Smolin’s article was an attempt to ex-
plain why quantum gravity had not produced a researcher like Albert 
einstein, who successfully revolutionized physics by thinking far out 
of the box. the article was a preview of a book Smolin was just finish-
ing, called The Trouble with Physics. In both the article and the book, 
Smolin argued that physics, or rather, quantum gravity research, faced 
a sociological problem. A group of physicists working on something 
called string theory, one approach to solving the basic problem of how 
to combine gravitational physics with quantum physics, had come to 
dominate the field. When it came time to hire new faculty members 
into their physics departments, or to dole out research funding, these 
string theorists tended to give the resources to other string theorists 
rather than to people working on alternative approaches to quantum 
gravity.
It was this Physics Today article that had prompted the unexpected 
e-mail. the man who had written the message was eric Weinstein, 
now a hedge fund manager and financial consultant in Manhattan. 
Weinstein agreed with Smolin’s assessment of the physics community, 
based on his years working as a mathematical physicist at Harvard and 
then at MIt. But he had a bigger point to make, about how sociology 
could distort progress in academic research more broadly. As far as 
Weinstein was concerned, the sociology problem in physics was noth-
ing. economics was ten times worse.
Smolin wanted to hear more. He invited Weinstein to visit the Pe-
rimeter Institute, the research institute in Waterloo, ontario, where 
Smolin was based. Perimeter was founded in 1999 by Mike Lazaridis, 
the entrepreneur and founder of research in Motion, the company 
responsible for BlackBerry devices. Perimeter was designed as a place 
to foster research in fundamental physics. It has a strong reputation 
for open dialogue and discussion among different approaches on basic 
questions, in large part because of Lee Smolin’s influence on the in-
stitute from its earliest days. In some ways, Perimeter is an attempt to 
answer the sociological problem identified in Smolin’s book and ar-
ticles. It was an ideal place for someone with Weinstein’s background 
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t h e p h y s i c s o f wa l l s t r e e t

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