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Complex Systems: Surprises On The Way From Micro To Macro: J.P. Bouchaud
Complex Systems: Surprises On The Way From Micro To Macro: J.P. Bouchaud
Complex Systems: Surprises On The Way From Micro To Macro: J.P. Bouchaud
J.P. Bouchaud
http://www.cfm.fr
Endogeneous crises?
Financial markets, the economy, many other social phenomena exhibit crises, ruptures, sudden discontinuities that resemble far-from-equilibrium phenomena in complex systems
Accumulating empirical evidence for positive feedback loops, self-reexivity and endogenous crises
Most price jumps appear unrelated to any news at all! Volatility after jumps has the same features as earthquake aftershocks
Market stability is not even an interesting question (Friedman) when feedback loops and instabilities are everywhere!
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The behaviour of the whole is dicult to guess from the behaviour of its parts
interactions lead to essentially new phenomena
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> 0: cost of leaving the 0 state (e.g.: pay ones taxes, cost of moving to solar heating, etc.) > 0: incentive due to either social/peer pressure, true benets due to reduced costs, increased usefulness (phones)
Choice Theory: non-deterministic (non-rational) choices: ev P (0 1) = ; v 1+e P (1 0) = 1 1 + ev
two polarized solutions; in equilibrium the population should jump discontinously from 0 for < 2 to 1 for > 2.
Unless is really small or really large, this never happens in a large population! The tragedy of the commons: everybody knows that = 1 is a better social optimum, but it is individually too costly for anyone to make the move
Solutions to escape from bad minimum: Enforce 0 (e.g. make the cost of cheating high), nucleation, synchronization (instead of independent decisions),...
personal opinion, propensity or utility i heterogeneous with rms public information (price, technology level, news, zeitgeist) (t) (for illustration purposes, smooth in time) social pressure or imitation eects (t) (as above)
The RFIM: a unifying framework for many phenomena
> c: herding dominates, strong distortion/amplication of the fundamental demand curve: discontinuities appear at the macro level imitations induced panic/crashes/mistrust
1.0 0.2 0.0 0.8 Normalized sound intensity 0.2 0.4 0.6 0.6 0.8 5 0 5
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End of clappings
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Number of trust bonds and average trust as a function of time I trust you because he trusts you because I trust you As trust builds up, the system becomes more fragile cf. Battiston et al., Kirman et al.
rich dynamics with transient stasis, punctuated by microcrises mimics (r)evolution/regime shifts
Increased eciency generically means more instabilities
Critical fragility to external perturbations and small changes of parameters small local shocks generically trigger large systemic eects
Rough landscape
Rather than: