Physic of Socioeconomic System (Diapo)

Physics of Socio-Economic Systems
M Benzaquen
CNRS, Ecole polytechnique, Capital Fund Management
3rd year course
www.EconophysiX.com Chair of Econophysics & Complex Systems

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www.EconophysiX.com

People

Course and Tutorials
• 15h cours
• 9h TD
TD1 Collective opinion shifts (RFIM)
TD2 Power laws in economics: from data to modelling
TD3 Copycat and phase coexistence in a forecasting game
TD4 Ants, herding and intermittency
TD5 Networks — Google PageRank
TD6 The true statistics of financial time series
• Standard exam on paper at the end of the course

Course and Tutorials

Outline
• An introduction to Econophysics
• Supporting documents

Are the conjectures of standard economics reasonable?
p
37 13⇡
= 20$
12
Agents in standard economic models are perfect optimisers
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• Fully rational
• Fully informed (instantaneously omniscient)
• Homogeneous
• Independent (isolated)
Collective behaviour is the reflection of individual behaviour

(representative agents/firms/central banks) HOMO ECONOMICUS
Not that hard to see that real economic agents are rather
• Irrational (driven by emotions, follow thumb rules)
• Partially informed (access to limited/local information and learn slowly)
• Highly heterogeneous
• Connected (they influence one another)
HOMO SAPIENS Aggregate outcomes most often do not reflect individual motives

Statistical physics and collective behaviour
Starlings video Youtube

Statistical physics and collective behaviour
Overcoming the gap between microscopic and macroscopic behaviour is the very raison d’être of statistical physics

Collective behaviour
Bird flock Fish schools
Single Single
starling sardine

Bird flocks Fish schools Synchronised Fireflies
Mexican wave Love locks Nazi crowd

Phil. Anderson (1923-) MORE IS

DIFFERENT
The behaviour of large assemblies of interacting individuals cannot be

understood as a simple extrapolation of the properties of isolated
individuals. Instead, entirely new, unanticipated behaviours may appear
and their understanding requires new ideas and methods.
Statistical physics has developed tools to describe these “collective

phenomena”, pertaining to crowds and not to any of its single
constituents. Small changes at the individual level can trigger dramatic
effects at the collective level - for the better or for the worse.
Adapted from Phil. Anderson (1977 Nobel prize) in Science (1972).

When men are in close touch with each other, they no longer decide
independently of each other, they each react to the others. Multiple
causes come into play which trouble them and pull them from side to
side, but there is one thing that these influences cannot destroy and that
is their tendency to behave like Panurges sheep.
Henri Poincaré, Comments on Bachelier’s thesis

Interactions matter!
Without interactions there can be • no bird flocks Complex networks mediate

• no fish schools such interactions
• no Mexican waves
• (…)
• and no realistic economies!
Note: The standard model does not deny that agents interact, but
they only do so through the price system.
Australian
interbank
network
[about the 1929, 1987, 2008 worldwide crises:] “All of this
is a story of contagion, of interdependence, interaction,
networks and trust. Yet these notions do not figure
prominently in economic models."
Alan Kirman

Interactions matter!
Further,
theoretical standard economic systems are whereas real economic systems
seem to be rather
• linear consequences y
y
• nonlinear
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x
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causes
• out of equilibrium (dominated by fluctuations,
• at equilibrium (rapid relaxation) heterogeneities and slow relaxation)

Phase transitions
• Within a phase, linear theory applies

Phase diagram for water
• Near the boundaries, small fluctuations have dramatic effects
(nonlinear). At the boundaries, there is phase coexistence
melting LIQUID
freezing
Pressure
SOLID
GAS
Temperature

Phase transitions
• Within a phase, linear theory applies

Phase diagram for water
• Near the boundaries, small fluctuations have dramatic effects
(nonlinear). At the boundaries, there is phase coexistence
• Metastability
melting LIQUID
freezing
Pressure
SOLID
GAS
• Macroscopic aggregate properties are universal, robust against
changes of microscopic details. Only a few emergent quantities seem
Temperature to be relevant.
Can anything of the sort be said for socioeconomic systems?

Is equilibrium ever reached in socioeconomic systems?
Standard economics relies on the hypothesis that the system converges rapidly to an equilibrium and is only knocked off that path by
exogenous shocks.
(…) Theoretical economics is extremely simple. Everything is reduced to the maximisation of concave functions on convex sets.
Harold Kuhn
Relaxation to equilibrium in collective interacting systems can be extremely slow

(possibly infinitely slow)
time
Crystalline state Glassy state
If the environment fluctuates faster than it takes for the system to relax, equilibrium
equilibrium is never reached, the system is fundamentally out of equilibrium
(and looking for equilibria is pointless)
time

Optimisation vs coordination
The invisible hand
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,
but from their regard to their own interest.”
Adam Smith (1723-1790)
If individuals are left free to pursue their own interest, society self organises towards a socially optimal state.
e.g. Schelling segrega.on model

"The systemic effects are found to be overwhelming, there is no simple correspondence of individual
incentive to collective results”.
Tomas Shelling, 1971
Optimum seeking individuals may very well find themselves in completely non-optimal aggregate states.

Exogenous vs endogenous dynamics
Data reveals that 95% of 4𝜎 price moves in financial markets

are endogenous (so are some extreme events such as Flash
Crashes), in conflict with most economical models.
6 May 2010

Feedback
Accounting for feedback effects (most often disregarded in standard models) is crucial to understand endogenous dynamics

Evidence in Data
Massive data revolution (Big data)
• Strong interactions
Data provides evidence of • Strong heterogeneities
• Strong nonlinearities
• Nongaussianities
• Irrational agents
• Metastability
• Long relaxation times
• Feedback effects
• Endogeneity
• Universality
which indicates that natural sciences can contribute a great deal to the subject…
… and yet, most economists are defiant at best, if not completely indifferent, and very resistant to change.

Different methodologies… A provocative analysis
A physicist is driven by phenomenology An economist is driven by axioms, consistency, and

strong logical constraints (full rationality etc.)
Observation Mathematic transcription

of reality of reality Hypotheses Consistent theory
Predictions Theory (e.g. H' = E')

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Predictions
?
If the theory doesn’t match reality, we throw it away!
Even if it pretty and self-consistent! Deviations of reality from the
? economic theory are called
Physics is often not consistent (e.g. Quantum “anomalies”
mechanics vs. Gravitation), but it is quite efficient!
But should crises be seen as anomalies?
Reality
Economic theory is consistent if not plausible

Why don’t economists change their way of doing things?
I don’t have the answer

Perhaps it is as simple as Planck suggests:
A new scientific truth does not triumph by convincing its opponents and making them see
the light, but rather because its opponents eventually die, and a new generation grows up
that is familiar with it.
Max Planck (1858-1947)

A new paradigm
In 2008…
WHAT
HAPPENED?!
(…) So in summary your majesty, the failure to foresee the timing, extent and
severity of the crisis …was principally the failure of the collective imagination
of many bright people to understand the risks to the systems as a whole.
Reply to the queen by the British Academy

A new paradigm
Standard theory did not help foresee the crisis, nor has it helped understand it or craft solutions.
[…] our theories not only did not allow the key questions about insolvency and illiquidity to be
answered. They did not allow such questions to be asked. A new paradigm is needed.
Most mainstream economics theoretical innovations since the 1970s […] have turned out to be
self-referential, inward-looking distractions at best. Research tended to be motivated by the
internal logic […] and aesthetic puzzles of established research programmes rather than
by a powerful desire to understand how the economy works.
Willem Buiter 06 March 2009

A new paradigm
« Les agents atomistiques optimisateurs qui sont sous-jacents aux modèles existants ne
permettent pas de capter le comportement des acteurs économiques. (…) Nous devons traiter
l'hétérogénéité et l'interaction entre agents. (…) Nous devons envisager d'autres motivations
pour les choix économiques. (…) La modélisation multi-agent (calcul et simulation) élimine
l'hypothèse d'optimisation et permet de représenter des interactions plus complexes entre les
agents. De telles approches méritent notre attention. »
Jean-Claude Trichet (ex-president ECB)
La simulation numérique, en particulier lorsqu'elle repose sur de bonnes données, est une activité
parfaitement respectable et probablement fructueuse.
Frank Hahn (1925-2013) The Next Hundred Years (1991)

A new paradigm
The recent near-collapse of the world’s banking system does not seem to correspond to the
collective result of individual banks optimising in isolation and unconsciously coordinating on a
disastrous solution. What is involved is a great deal of local interaction (…). Large systems with
micro-characteristics of this sort are studied in physics, biology and also sociology. There, it is
recognised that the system may switch rapidly from one phase to another and that this will be
dependent on its internal organisation and not on some exogenous shock.
Alan Kirman, Complex economics: individual and collective rationality
Contrary to what is said in standard macroeconomic models aggregate behaviour is not like individual behaviour. The organisation of
interacting individuals generates aggregate structure. We should distinguish between collective and individual rationality. Neither
implies the other. How things come to be coordinated is what we need to explain. We should shift to models in which collective
behaviour emerges from the interaction rather than making an implausible jump from the individual to the aggregate.

A new paradigm
We must address socio-economic systems as complex systems, rather than as mathematical equations.
We have in our discipline been led up the wrong path by the invisible hand of the demon, and
because it takes both time and money to make an engine we are producing on a large scale
“aeroplanes” which have no engine.
Michio Morishima, The good and bad use of mathematics, 1984

Interdisciplinary research is essential
La relation entre la p
The frontiers of the different disciplines are not cast in stone.

A true collaboration between disciplines with different methods is imperative to make progress efficiently.
Different disciplines & cultural biases

• Mathematicians are often biased by analytical tractability
• Financial engineers are often biased by profits
• Economists are often biased by heavy indisputable axioms/principles, and their political agenda
Theoretical economics can only evolve through small changes, small variations about the classical assumptions
But history has taught us that science is nonlinear, big breaks are needed!
Aristotle didn’t show that the earth was round by expanding about the flat earth hypothesis
Einstein didn’t impose relativity without dethroning Newton
• Physicists certainly have their biases as well. But they are certainly used to being wrong and challenging themselves
They are generally not driven by profit, nor do they need analytical tractability to address a problem

But I am not saying that physicists have got it all figured out!
Many early “econophysicists” got it wrong using “toolbox approach”
Socioeconomic systems are different from physical systems in many aspects
Economists, econometricians, mathematicians, sociologists, psychologists and physicists must work together!
Huge challenges ahead for you!

Building a community…
NAEC

What is my goal?
Rather than teaching fully consistent equilibrium theories, I will tell you inspiring stories (toy models)
Show you financial markets as a complex system, rather than as a mathematical equation
Foster critical thinking/scientific curiosity on financial markets

Outline
• An introduction to Econophysics
• Supporting documents

Supporting documents - Physics of Socio-Economic Systems
ENSAE 1A
Michael Benzaquen
Ladhyx, UMR CNRS 7646, Ecole polytechnique

Bird flocks Fish schools
There is no leader, 10 000 birds/fish can collectively change direction in less than 0.5 seconds
Mexican wave Love locks (pont des Arts, Paris)
“I can calculate the motion of heavenly bodies, but not the madness of people.”
Isaac Newton
Neural networks
Conscience is clearly an emerging phenomenon, not « belonging » to any single neurone.

Exogenous vs endogenous dynamics
Data reveals that 95% of 4𝜎 price moves in financial markets

are endogenous (so are some extreme events such as Flash
Crashes), in conflict with most economical models.
6 May 2010
Critical phenomena
2D Ising model
caractérise le système, ou encore que les propriétés du système seront les mêmes quelle qu
V Point critique et invariance d’échelle
à Scale
laquelle on se
invariance place
at the pour
critical pointl’observer (voir Fig. 4).
Au point critique p = pc , les systèmes de percolation sont invariants d’échelle ou fractales. C’est à dire qu’aucu
échelle ne caractérise le système, ou encore que les propriétés du système seront les mêmes quelle que soit
“distance” à laquelle on se place pour l’observer (voir Fig. 4).
Figure 4: Simulation de percolation au point critique p = p à gauche, zoom ⇥10 à droite.

Simulation de percolation au point critique p = pc à gauche, zoom ⇥10 à droite. “FK-Isin
c “FK-Ising mod
(Fortuin-Kasteleyn)” aussi connu comme “random-cluster model”.
RFIM 0.00
0 5 10 15 20
t (sec.)
Fig. 6. Typical time series of sound intensity as a function Fig

of time, during applause. One sees the initial rise, a relatively log
• Collective decisions accounting both for agent heterogeneity and social imitation. constant plateau phase, and the final phase where clapping is
tapering off. Notice a few spurious spikes, corresponding to
to
rf
• Changes of opinion can occur either abruptly or continuously, depending on the importance of herding effects. occasional ‘bravos’ or other shouts. The data was filtered with
Q. Michard and J.-P. Bouchaud: Theory of collective opinion shifts:
a Gaussian from smooth
window of widthtrends
0.225 to
s. abrupt swings 155
bar
com
Physical Journal B
h∼
1.1 −1.00
1.0
0.0
0.8 0.2
1
Germany
0.0 po
Italy 0.9
0.8 −0.2
da
−1.50 ph
Number of cell phones (normalized)
−0.1
0.4 −0.4
Normalized sound intensity

0.7
Normalized birth rate

−0.6
Germany
Portugal
0.6 ure
−0.8
−5 0 5 con
ln(h)
0 0.5 −0.2 −2.00
0.5 1994 1998 2002 rat
0.4 the
Birth rate
0.3 h~w
−2/3 sho
France
Germany
h~w
−0.71
Sharp ind
−2.50 Cell phones
UK 0.2 Fast
−0.62
h ~ Slow
w
tra
Spain
Italy
0.1 Germany pin
Portugal fas
0 −0.1 0.0 pe
−3.00
1994 1996 1998 2000 2002 1960 1970 1980 1990 2000 −6
−1.00 −4 0.00 −2 0
1.00
Timeln(w)
(sec)
2 2.00 4 63.00
use
Years Years
the
Fig. 5. Evolution of the total number of cell phones in use (all Fig. 3. Normalized fecundity index as a function of time for Fig. 7. Height
Fig. 4. Terminal stages
of the peakofh,clapping
vs. widthcorresponding
of the peak w,to in three
a log- me
providers included) in various European countries (3 month av- Germany and Portugal (3 year average). Other countries are characteristic
log scale, bothrecordings: one of
for birth rates andthem
for iscella phones.
slow decay
Theofmean
ap- cor
erage). Inset: monthly change for Germany and Italy, allowing intermediate in terms of the sharpness of the crossover. Inset: plause (over 10 s),
field prediction h ∼corresponding
w−2/3 is shown to for
a very heterogeneous
comparison. au-
A typical J
one to extract both the height h and width w of the peaks. yearly change of the fecundity index and Gaussian fits, allowing dience.
relativeThe
errortwo
of other
20% on ones
theare fast events
fitted values (on of hthe
or order of one
w translates eve
one to extract both the height h and width w of the peaks. second), one and
into vertical of them can even
horizontal errorbebars
classified
of 0.2, as instantaneous
comparable with me
since its width
the erratic spreadcannot
of thebepoints.
resolved The (i.e. it is thinner
heights than the
corresponding to see
the a priori amount of time ti a given individual would Sabine reverberation
cell phone data has beentimedivided
of the room (≈1.8 s)).
by a factor 1.7 to match the
carry on clapping if isolated from others. But of course, We have downloaded from Eurostat birth rate data (the absolute height of the peak is in fact not da
we all hear what others are doing, and are clearly influ- (europa.eu.int/comm/eurostat/) the birth rate in universal). The width w is however not rescaled, and shows int
enced by the level of clapping of the public as a whole. Michard place
several representative European countries (Belgium, & Bouchaud,
that during
the twoEur.
explosion of Phys.
special
cell J.is,Bcalled
events
phones 47,expected,
as 151–159
“Couleurs (2005)
Fran-
faster that ab
Many people would hate being the last individual to clap the collapse of the birth rate.
Ants recruitment
ANTS, RATIONALITY , AND RECRUITMENT 145
E=0.005 E=0.01 E=0.15
8=0.01 8 :0.02 8:0.3
a b C
FIGURE I
Equilibrium Distributions for the Model with State Space {0,1, . . . , /V} with Three
Different Values of and 8 and N = 100 Kirman 1993
Ants recruitment
ANTS, RATIONALITY , AND RECRUITMENT 145 ANTS, RATIONALITY
146 QUARTERLY JOURNAL OF ECONOMICS ANTS, RATIONALITY , AND RECRUITMENT 147
10 0 100
80 80
60 -
E=0.005
A E=0.01 E=0.15
60
E=0.005 E=0
8 :0.021 8 :0
Downloaded from http://qje.oxfordjournals.org/ at UQ Library

K 8=0.01 8:0.3 K 8=0.01
Downloaded from http://qje.oxfordjournals.org/ at UQ Library o

40- a b C 40- a b
FIGURE I FIGU
Equilibrium Distributions for the Model with State Space {0,1, . . . , /V} with Three Equilibrium Distributions for the Model w
20 Different Values of and 8 and N = 100 20 ■ Different Values of
IL
IIIIIIIIIIII_Ahltioiq s_
E ands are shown in Figure II. When the probability E of E ands are shown in Figure I
400 800 1200 1600 2000
self-conversion400 800high,
is relatively 1200 and 1— 1600 2000 of being
8, the probability self-conversion is relatively high, a
converted by another agent FIGUREisIlarelatively low, as in Figure Ha, the
FIGURE Ilb converted by another agent is rel
100,000 meetings, every fiftieth plotted, E = 0.002, 8 = 0.01.
state kIN of the
100,000 system
meetings, everyfluctuates
fiftieth plotted,around
E = 0.15, 8one-half,
= 0.3. (that is, 50 of state kIN of the system fluctuate
the 100 individuals simulated are in each of the two groups). the 100 individuals simulated a
However, in
PROPOSITION. f isFigure Ilb, of
the density where the probability
a symmetric of self-conversion
Beta distribution; i.e., is In concluding the presentation of the model,However, it is important Kirman
in Figure
to Ilb,1993
where th
f (x) = const xa -1 (1 - X) a-1 . emphasize one thing. The stochastic process presented here gives
Ants recruitment
It is enough for an individual who is going to dine at one restaurant to suggest to another that he do the same. This
corresponds to tandem recruiting in ants. If both derive pleasure from each other's company and furthermore
continue to dine at the same restaurant until one of them meets someone who dines at the other, then this
corresponds to the ants process and will lead to polarization. Becker himself explains the concentration of diners at
one restaurant by an externality arising from the greater pleasure experienced by eating at the more popular of the
dining places. He uses this externality to derive an asymmetric equilibrium but does not explain how it is attained.
The ant model, particularly with trail recruitment, could be applied to this example, and such a general externality,
while not necessary, could be incorporated by having the probability of conversion to the majority increase with the
size of the majority. This would make the process more extreme.
A Kirman, about Becker 1991

Switches
Schelling
Schelling
Agent’s utility function
Grauwin, Bertin, Lemoy and Jensen 2009

Schelling
Giant Catalytic Effect of Altruists
Jensen, Matreux, Cambe, Larralde and Bertin 2018

There is a steadily accumulating body of evidence that people, even in carefully set up experimental conditions, do not behave
as they are supposed to do in theory. Heaven alone knows what they do when they are let loose in the real world with all its
distractions.
This said, it seems reasonable to assume that people are inclined to move towards preferable situations in some more limited
sense and not to perversely choose outcomes which make them feel worse off. But, one can think of many ways in which this
could be expressed and one does not need to impose the formal structure on preferences that we have become used to.
People may use simple rules of thumb and may learn what it is that makes them feel better off, they may have thresholds
which when attained, push them to react.
Alan Kirman
A large consensus among agents about the correlations between a piece of information and the system’s reaction can be
enough to establish artificial correlations. Keynes called such a commonly shared representation of the world on which
uncertain agents can rely a convention.
A conventional valuation which is established as the outcome of the mass psychology of a large number of ignorant
individuals is liable to change violently as the result of a sudden fluctuation of opinion due to factors which do not really
make much difference.
John Maynard Keynes

Fish markets
It is a peculiar fact that the literature on economics (…) contains so little discussion of the central institution
that underlies neoclassical economics— the market.
Douglass North, 1977
Fish markets
What is the meaning of having preferences over future bundles of goods? How do I know what my preferences will be
when I arrive at a future point in time? In particular, if my experiences influence my tastes how can I know what I will turn out
to prefer. (…) There was an advertisement for Guinness which said, ‘I don’t like Guinness. That’s why I have never tried it’.
This seems absurd to most people but is perfectly consistent with an economist’s view of preferences. Since my preferences
are well defined I do, in fact, know whether I like Guinness or not. Therefore there is no reason for me to try it if I happen not
to like it.
Alan Kirman
03-Economics-c03 Complex Economics page 77 of 124 May 1, 2010 13:46
Fish markets
Large daily fluctuations

Fish markets: emergence of aggregate coordination 77 Quite universal monthly distribution
15
Number of transactions
12
0
Tuesday
N
Monday
Saturday
O
Friday
Thursday
T
Wednesday
2.5 5 8 10 12 15 16.5 20 23
Unit price
FO
Distribution of prices for fish 44 during week 1−7 July 1987
25
Number of transactions
20
R
15
10
D
0
IS
Tuesday
Saturday
Friday
TR
Thursday
Wednesday This seems to be a very sensible notion of equilibrium but one
3 5 6 8 10 11 12 13 14 15 15.5 16 17 18
Unit price which is far from the standard ones.
IB
Distribution of prices for fish 40 during week 1−7 July 1987

A.K.
Figure 3.1 The price distribution for two types of fish over a week.
Fish markets
Price dynamics within a day — learning
Marseille
Fish markets
The habits and relationships that people have developed over time seem to correspond much more to
things learnt by the force of experience rather than to conscious calculation.
Alan Kirman
No homo econo
learning : différe
change très len
Dans le marché
action des autre
424 THE ECONOMIC JOURNAL
2000] MARKET ORGANISATION AND TRADING RELATIONSHIPS 423
A numerical experiment
n = 30 acheteurs <latexit sha1_base64="ei634HxCvzums3R+/iMM9v0XMks=">AAAIV3ichVVdT9swFDVso132BdvjXqIhpD1sqIVJ28OQ0NjEJiHx2YJEKmQ7bmoRO8F2Sysrv2Gv20/j12xOW6Cxa2Gp0rXPOdfnXjs1ylMqVaNxs7D46PGTpVr9afDs+YuXr5ZXXrdl1heYtHCWZuIMQUlSyklLUZWSs1wQyFBKTtHlTomfDoiQNOMnapSTDoMJp12KoTJLrYBvbTYullcb643xCN2gOQ1WwXQcXKzUvq5FcYb7jHCFUyjlebORq46GQlGckiJYi/qS5BBfwoScm5BDRmRHj/0W4ZpZicNuJsyPq3C8WpFoyKQcMWSoDKqedMBydS543lfdLx1Ned5XhOPJXt1+GqosLOsPYyoIVunIBBALavyGuAcFxMp0KbCrapZVIdNPIoogkkRNYkVYnkJFNIcDmoxbGZZ+s1QW2hBn/BCemGPsmSwQkbSKmRSUN2fczqJaUdOzquDEkMuWOVzEqvNp/z7ctqoCXkM5Mmh1cTg5m5kixwuaZ4JB0z4yVIVGyVYRBEHEyTXOGIM81hHOpEGichsMU71TFFVcUHk5gx/ZuOoLPoOf2HgcT1HBdGyDkib8Hh7PLAYcJFMCQvqHjeJscI+W1i0xMucZlbWb7OXErs2c6B1eTuwEaL/QOox60rSZ6I+N9U3GigixcN9OhQ49zEOH2fYw2w7zysO8cphDD3PoMAce5sBh5h5mbjMHREEPNyohO3Hsy6yj7yRVsNzB0fh6cau5cjU59bkyiEOWfrZ06TJhPrq5xswpOqWmgMS+XzS+v76/nNvHdr01j/85u3q3cKpmx15nOjqeWLMlR73soZ0iYTiu0vd93On254j2oN+hwVA8x+Ie9V6ApGTbrTt6yJiYY2znIREuRea9bdqvqxu0N9abJj78tLr9bfry1sFb8A68B03wGWyDn+AAtAAGFPwGf8Df2k3tX32pXp9QFxemmjegMuor/wEvugj9</latexit>
= 0.1 (mémoire typique 10 jours)

m = 3 vendeurs
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<latexit sha1_base64="kKyBxkyOAQ9a+6LWe1sfhuNYP1U=">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</latexit>
2000] MARKET ORGANISATION AND TRADING RELATIONSHIPS 423
424 THE ECONOMIC JOURNAL [ APRIL
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< c <latexit sha1_base64="h0jS8+O+79/nDz3P1YMjJ64ldHk=">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</latexit>
y
Fig. 3. Charts for the Disorganised Regime.

(30 agents visiting 3 sellers, with the discount parameter „ à 0:1 and the non
parameter ‚ à 0:15‚ c ). The Ærst three graphs show market organisation by simple
at times 10, 22 and 50. They show that no organisation takes place. The fourth
shows a time plot of the order parameter y (vertical axis: [0:3, 0:5]). The
parameter stays well below 1. The last graph gives a record of seller 1. The time
dislay the initial and the Ænal endowment, the number of customers, the num
customers refusing the proposed priceFig. (see3.section
Charts for theand
3.2), Disorganised Regime.
the number of uns
424 THE ECONOMIC JOURNAL [ APRIL customers who (30did
agents visiting 3tosellers,
not manage with theFluctuations
buy anything. discount parameter „ à 0:1
in the market
parameter ‚ à 0:15‚ cdecline
). The Ærst
overthree
time.graphs show market organisa
at times 10, 22 and 50. They show that no organisation takes plac
# Royal Economic Society
shows 2000 plot of the order parameter y (vertical axis: [0
a time
parameter stays well below 1. The last graph gives a record of selle
dislay the initial and the Ænal endowment, the number of custom
y customers refusing the proposed price (see section 3.2), and the n
customers who did not manage to buy anything. Fluctuations in
c
<latexit sha1_base64="h0jS8+O+79/nDz3P1YMjJ64ldHk=">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</latexit>
<latexit sha1_base64="twyjNo1i5PuLpwvmu8ngeI2dBmk=">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</latexit>
decline over time.

# Royal Economic Society 2000
Heterogeneous population and real data
432 Marseille fish market 1990

THE ECONOMIC JOURNAL [ APRIL
100
fidelity histogram
90
80
number of buyers of cod

70
60
50
40
30
20
10
0
0 2 4 6 8 10 12 14 16 18 20
number of visited sellers

Fig. 5. Histogram of the Number of Buyers of Cod as a Function of How Many Sellers They Visit on
Average During One Month in 1990.
The sample of buyers include those visiting more than once per month, and present in
the market for more than six months. The distribution is clearly bimodal, with one peak
corresponding to Ædelity to one seller, and another peak centred on visting 4 sellers on
average.
Price dynamics within a day — learning
Ancona
Fish markets
Gini index — loyalty
Rappel Courbes de Lorentz

• 1 acheteur et N vendeurs.
• On rank les N vendeurs de celui qui a le moins de visites de l’acheteur à celui qui en a le plus.
• On porte le nombre cumulé de visites par vendeur (y) en fonction du rank de du vendeur (x).
• On normalise à 1/1 pour calculer le Gini G comme 2 fois l’aire entre la courbe et la droite de pente 1.
• Si tous les vendeurs ont le même nb de visites, on obtient une droite et G = 0. Si en revanche il n’y a que 1 vendeur regroupant toutes les visites, on a G = 1.
• Sur le graphe (b) on peut par exemple lire que la moitié des vendeurs ont reçu 15% des visites, l’autre moitié en ayant reçu 85%, ou encore que 10% des
vendeurs ont reçu 50% des visites.
Fish markets
idem Slut
markets a
intricate n
Aggregate regularity should not be considered as corresponding to individual rationality. (…) The fact that we It is theref
observe an aggregate result which conforms to the predictions of a particular model is not enough to justify the aggregate
behaviour
conclusion that individuals are actually behaving as they are assumed to do in that model. economic
that can b
common
commodi
Alan Kirman demand o
implicit as
be though
furthermo
restriction
Households may be irrational and yet markets quite rational. (…) Complicated interactions between individuals
I hope it w
may lead to simple aggregate properties. sort of ma
that it is n
Gary Becker, 1962 equating
that very
Financial Markets
Bachelier’s first law (1870-1946)
8.1. INTRODUCTION 125

Variogram of the Dow Jones index (1950-2000)
-1
Data
-2 Random Walk
log10(V(t))
-3
-4
-5
Bachelier à 15 ans
0 1 2 3
log10(t) (t in days)
Figure 8.1: Bachelier’s first law: variogram of the log-price of the Dow-Jones
index, showing a very clear diffusive behaviour.
On short time scales, average effects are small compared to fluctuations.

Elementary cumulative pdf of returns (30 min and daily) for different assets
S&P 500 GBP/$
30 min 1 day 30 min 1 day
Bund
30 min 1 day
30 min 1 day
Elementary cumulative pdf of returns (daily and monthly) for a pool of 500 US stocks
1 day 1 month
negative tail: µ⇡3 negative tail: µ⇡3

positive tail: µ ⇡ 4.1 positive tail: µ ⇡ 5.7
Elementary cumulative pdf of daily returns in extreme markets
Euro$ front-month (USD Libor futures) MXN/$
µ ⇡ 2.64 µ ⇡ 1.34
Intermittent nature of volatility fluctuations
Daily returns
Scale invariance at the critical point
Turbulence Multiscale intermittency

(fluid mechanics)
Fluid velocity
Excess volatility
(Number of weekly 1%
jumps/min on S&P stocks)
Return-volatility correlations (Leverage effect) and skewness
(in days)
The Efficient Market Hypothesis (EMH)
I can’t figure out why anyone invests in active management [...]. Since I think
everything is appropriately priced, my advice would be to avoid high fees. So you
can forget about hedge funds.
The word “bubble” drives me nuts, frankly. I don’t even know what a bubble
means. [...] Prices (in 2008) started to decline in advance of when people
recognised that it was a recession... That’s exactly what you would expect if
markets were efficient.
Eugene Fama
Professor Fama is the father of modern efficient-markets theory, which says

financial prices efficiently incorporate all available information and are in that
sense perfect. In contrast, I have argued that the theory makes little sense, except
in fairly trivial ways. Of course, prices reflect available information. But they are far
from perfect. […] I emphasise the enormous role played in markets by human
error.
Fama and Shiller shared the 2013 Nobel prize… Robert Shiller
The Efficient Market Hypothesis (EMH)
We might define an efficient market as one in which price is within a factor of 2 of

(its fundamental) value [...]. By this definition, I think all markets are efficient almost
all of the time. “Almost all” means at least 90%.
Fisher Black
No, markets weren’t “efficient” at finding the truth; they were just very efficient at
converging on a conclusion – often the wrong conclusion.
Ben Horowitz
News feeds and the Omori law
Exogenous (news-related) jumps Endogenous jumps

15 2
News, s=4 Jumps, s=4

News, s=8 Jumps, s=8
Fits, a/t+b 0.5
Fits, a/t +b
10
Volatility
1.5 p
⇠ 1/t ⇠ 1/ t
5
0 1
50 100 0 50 100
t (min.) t (min.)
Figure 5: a) Relaxation of the volatility after s = 4 and s = 8 news jumps,

and power law fit with an exponent β = 1. b) Relaxation of the volatility
after s = 4 and s = 8 jumps, and power law fit with an exponent β = 1/2.
Note the difference in the y-scale between the two curves (the first point, at
t = 0, is suppressed in both
Joulin, A.,cases).
et al. "Stock price jumps: News and volume play a minor role." Wilmott Magazine (2008): 1-7.
Assume thesomewhat followingsomewhat
intriguing intriguing
observation
stylized model (afterobservation
since it suggests
Chiarella since it that
‘92) suggests
the market’s
that the most
market’s
likely
most
statelikel
ation procedure we will calibrate parameters in two steps. In the
is being isfirst stepover-priced
over-priced
being we
or under-priced.
or under-priced.
This was This also recently
was alsoreported
recently in reported
SchmittinandSchm
ate each time series of log-prices to obtain asset specific Westerhoff values of Westerhoff
, g and the
N(2017). (2017).
fundamental value v0 . In the second step we search for aWe setstatistically
parameters ,
We statistically
confirm the confirm
bimodality
the bimodality
of mispricingof mispricing
distribution distribution
by applying by ap
common to an asset class (i.e. one set of parameters for stock indices,
Silverman Silverman
(1981) one for
test. 9
(1981) null9 hypothesis
Thetest. The null hypothesis
of the testofisthe
that test
theisinvestigated
that the investigated
distri-
odities,Calibrating
one for FX anrates and one
extended for government
version of the Chiarella bonds) that
(1992) maximizes
model
bution hasbution with
at most the
hasknoise traders
atmodes,
most kwhereand
modes, non-linear
k is
where k isdemand
a parameter of test.
a parameter
of the fundamentalists
of The
the test. allows
test rejects
The theto
test reje
on log-likelihood.
compute the price/value distortion pdf
CFM null hypothesis
null hypothesis
that distribution
that distribution
of mispricingof mispricing
for US equity
for US index
equity
hasindex
at mosthasoneat m
Table
Value3and
(see Appendix A) we report the results from the
(Majewski EM estimation of
Trend: An “Agent Based Model” (with S. Ciliberti mode et
& A. Majewski) al.mode
(p-value 2018)
is(p-value
1.5%) while
is 1.5%)
the while
null hypothesis
the null hypothesis
of the distribution
of the distribution
having athaving
most a
(3.7) with T-statistics of estimated parameters in Table 4 (see Appendix A).
this table we observe that for all assets N is substantially larger than V . This
two modes two cannot
modes becannot
rejectedbe (p-value
rejected is
(p-value
60.4%). is We receive
60.4%). We similar
receive results
similarforresults
the
Assume the following stylized model (after Chiarella ‘92)
ms that noise traders provide an important contribution distribution distribution
of mispricing
to the volatility andof mispricing
of Canadian of Canadian
stock index stock
- p-value
index equals
- p-value0.1%equals
for null
0.1%hy- for n
t is crucial to include them in the HABM. This featurepothesis ofpothesis
can be also atviewed
mostofoneat most
as modeone andmode
p-valueandequals
p-value equals
90.6% for 90.6%
null hypothesis
for null hypothesis
of at mostof a
er piece of evidence for the famous ‘excess volatility puzzle’ two modes.
firsttwo Consequently,
modes.byConsequently,
reported at 5% significance
at 5% significance
level we reject
level we
the reject
hypothesis
the hypothesis
that boththa
r (1980). empirical empirical
distribution distribution
plotted onplotted
Figureon 12Figure
have one12 have
modeone andmodewe cannot
and wereject
cannottherej
hypothesishypothesis
that they thathavethey
at most
havetwoat most
modes, twowhich
modes,suggests
which thatsuggests
the distributions
that the distrib
of mispricing of mispricing
of US andofCanadian
US and Canadian
index are index
bimodal.are bimodal.
US stock index US stock index Canadian stock index

© CFM 2018
© CFM 2018 www.cfm.fr 22
price/value distortion pdf price/value distortion pdf

Figure 12:Figure 12: Histogram
Histogram of the priceofdistortion
the price for
distortion
US stockforindex
US stock
(left)index
and Canadian
(left) and stock
Canadian
indexsto
(right), using
(right),
the non-linear
using the model
non-linear
(4.1).model (4.1).
and wt (invariance). Also shown are OLS Reg
1
3 3
This figure shows scatter plots o

3/2
Trading
log N invariance
vs log W/Qhypothesis log N
data from 15:00–15:15 CT, when the

the regression line for the invariance
2 2
7 7
−2 0 2 4 6 0 2 4
8
4
6 SPMINI Futures 2008 - 2011
log N vs log W ⌧ = 1 min 6
7
5 5
log N vs log W
6
6 US
4 4
2
5
Europe
2/3
slope of 2/3 (dashed).

4
3 4 3
3 Asia
2 2
0
2
2
−2 0 2 4 6 0 2
Figure 4.
0 2 4 6 8 10
log N vs log W
Figure 4. This figure shows scatter plots of nt onto wt − 3/2qt (Clark), wt − q
−2
0
5
2
7 and wt (invariance). Also shown are OLS Regression lines (solid) and model pre
Andersen et al. 2015slope of 2/3 (dashed).
form Eq. (3)
R
same value of ↵
Herding and percolation - aggregate impact 4
III. RESULTS
0.6, = 1.3 ±
of the fitted R
100
A. Aggregate Impact The correspon
10 1
as a dashed lin
CCDF P(X < x)
Rescaled Impact
FIG.
As 1:mentioned
AAPL on NASDAQ in 2016. Upper
in the introduction, we row,measure left: the Once Fretur
rescaled expected (x)
10 2
imbalance Q for di↵erent
aggregate-volume
Aggregate-volume impact binassizes N in arbitrary units (see eqns. 2,
impact: tors↵.).QX-
N and yR
Right: rescaled mean return RN (E/N )/N conditioned on thevery sign accurately
imbalance
row: the *
corresponding complementary cumulative +
distributions. The positive
5 an
10 3 NX 1 in Fig. 2. The
andRthen
(Q) binned
:= to m
log smooth out log noise
m Qand= discretisation
q , steps
(2) forinsmall
Fig. N
7 .ofThe
Ap
N t+N t t+i
4
day in the sample. scaling curves
10 i=0
Rescaled Volume Imbalance Rescaled Sign Imbalance the similar val
100 Bin size N where mt is the mid-price immediately before the tth ical approach
The right-hand panel of Fig. 1 showsththe rescaled closer look at
10 110
1
10 2
10 3 transaction,
7 Aggregate-signq t the signed
impact: volume of the t transaction the exponents
CCDF P(X < x)
aggregate-sign impact, defined as: counterpart fo

and h. . . i denotes an empirical average over all time win- F (x).
AAPL (NASDAQ, 2016) * +
10 3
2 dows containing N successive trades, executed
NX 1 the same Together wi
10 on NASDAQ in 2016. Upper row, left: rescaled expected return RN (Q/N ⇠ )/N conditioned of the volume
FIG. 1: AAPL
day.RNR(E)
1 (Q):=corresponds
log mt+N tolog t E = impact
themaverage ✏t+i of. a sin-
(9) Fig. 1 shows t
q+
imbalance10 Q 1for di↵erent bin sizes N in arbitrary units (see eqns. 2, ↵.). X- and y-axis rescaling exponents: ⇠ = 0.84, = 0.53.
Right: rescaled mean return RN (E/N )/N conditioned on the sign imbalance E (see eq. 9). ⇠✏ = 0.69, ✏ = 0.48. Lowergle market order of signed volume Q asi=0 studied in, e.g., of volume, B. resc
10 3
row: the corresponding complementary cumulative distributions. The positive and negative half were calculated independently
and then binned to smooth out noise and discretisation steps for small N . The largest shown N corresponds to the shortestHere, [8, 16].the impact for small sign imbalances is more lin- regime occur w
day in104.14
the sample. This must be c
10 4 As expected, both width and height
ear than for the volume imbalance, corresponding to a of the function Figure 3 sho
Rescaled Volume Imbalance Rescaled Sign Imbalance RN (Q)valueincrease with N . However, if↵.one rescales the per day, which
The104.08
right-hand panel of Fig. 1 shows the rescaled Bincloser size N look at the scaling exponents ⇠ and (and their
larger of the e↵ective parameter Around a sign several scaling
Q-axis with an N -dependent volume scale QN , and ple, there abou
aggregate-sign impact, defined as: counterpart for the aggregate-sign impact ⇠✏ and ✏ ). imbalance of 50%, the impact saturates sharply and the
re- width QN of th
*1 + 102 103 R-axistowards
with anzero N -dependent return This
scale mayRN , come
all curves size N = 100
104.0210 verts at the extremes. as a to ⇠ ⇡ 0.75 wh
Price p
N
X 1
RN (E) := log mt+N log mt E = ✏t+i . (9) >
for N ⇠ 10 collapse to a that
singlea master curve,imbalance
as shown in in contributing to
surprise since it means very strong is ⇡ 0.5. In o
103.96
i=0 B. Scaling & Hurst Exponents Figure 1 for AAPL, and in Appendix B for a variety of quent, and the
Here,1:the
FIG. AAPLimpact for small insign
on NASDAQ imbalances
2016. Upper row,is more rescaled expected return RN (Q/N ⇠ )/N conditioned of the volume
left: lin-
the order-signs is associated to a very small price change grows faster th
imbalance
ear than forQ forthedi↵erent
volumebinimbalance,
sizes N in arbitrary units (see
corresponding to aeqns. 2, Figure
↵.). X- and y-axisthe
3 shows rescaling
means exponents:
and standard⇠ = 0.84, = 0.53.
deviations
other assets. More precisely, one finds that empirically:
foron average. This e↵ect is found for all instruments, and Very similar va
Right: rescaled
larger103.90
value mean
of the e↵ective RN (E/N )/N
return parameter conditioned
↵. Around a signon theseveral
sign imbalance E (see eq. 9).The
scaling exponents. ⇠✏ =scaling
0.69, exponent
✏ = 0.48. Lower
of the
row: the corresponding complementary cumulative
imbalance of 50%, the impact saturates sharply and re- distributions. The positive and negative half were calculated independently
width QN of the aggregate-volume impact is found close
also for the trade imbalance, as shown ✓ ◆
in Figures 8 and 9 pacts (exponen
and
vertsthen binned to smooth out noise and
Thisdiscretisation steps
a fortosmall
⇠ ⇡N . The largest
the shown N corresponds to the RNin Appendix B.R
shortest The reason for Q highly peculiar be-
this and (6), the sl
N (Q) ⇡ RN F
towards zero at the extremes. may come as 0.75 while exponent governing the height , (3) 3 Technically, th
day in103.84
the sample.
surprise since it means that a very strong imbalance in is ⇡ 0.5. In other words, the width of the impact curve
haviour is investigated below. QNhowever, we have a
First, @ Rthe
asther N (Q)/@
the order-signs is associated to a very small price change grows faster than its height when the bin size is increased. scales
101This e↵ect
on average.
The right-hand
is found for all instruments, and
panel of Fig. 1 shows the rescaled
Very similar values are found for the aggregate-sign im-
closer look at the scaling exponents ⇠ and (and their gression. Only
also for the trade imbalance, as shown in Figures 8 and 9 pacts (exponents ⇠✏ and ✏ ). Note that using Eqs. (3)where QN and RN both obey power-law scaling with N ,
q
103 impact, defined as:

aggregate-sign counterpart for the aggregate-sign impact ⇠✏ and ✏ ). pass.
in Appendix B. The reason for this highly peculiar be- and (6), the slope of the linear region of impact follows 4
* + Some instrum
haviour is investigated below. First, however,
NX1 we have a as @ RN (Q)/@ Q|Q=0 = RN /QN . It scales as N  with
RN (E) := 1 log mt+N log mt E = ✏t+i . (9) QN ⇡ Q1 N ⇠ , (4) volume impact
0 i=0 B. Scaling & Hurst Exponents times fitted wit
✏¯50
Here, the impact

1 for small sign imbalances is more lin- Patzelt
RN ⇡ R&1 N
Bouchaud
, 2017 (5) reverts outside
ear than for the volume imbalance, corresponding to a Figure 3 shows the means and standard deviations for ent from R(E)
larger value of8800
the e↵ective parameter ↵. Around
9000a sign several scaling exponents.
9200 The scaling exponent9400
of the zero impact wi
imbalance of 50%, the impact saturates sharply and re- width QN of the aggregate-volume impact is found closeand the scaling function F (x) is a sigmoidal function
verts towards zero at the extremes. This may come as a Trade
to ⇠ ⇡ 0.75 while the exponent governing the height RN ances E.
Concave price impact
price change between the beginning and the end of the execution
Price impact I(q) = E[ p|q] Theoretical economics [Kyle 1985]: I(q) ⇠ q <latexit sha1_base64="nSrfJoL4DSNpiw7rKM79MmowREU=">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</latexit>
p
<latexit sha1_base64="LR7OVX8RYNL4CPTn3TYV7E3jwLY=">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</latexit>
Empirical data [eg. Tóth et al. 2011]: I(q) ⇠ q

traded volume
<latexit sha1_base64="mR4TsCt4dbg8rhLfiSqPFDpoz4w=">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</latexit>
The square root law (empirical)
daily volatility 1/2
D
<latexit sha1_base64="TVmn0fIuJWHkCZvg52zvo8m7zNc=">AAAIHXichZXLbhMxFIbdUkgJtxaWbEZUlVhAyBQkWKFKBRWkSr2nlTpRZXuciVXbM7WdtJE1j8AWljwNO8QW8TZ4krRN7FgdKZLt/zvH/zn2ZFDBqNLN5r+5+TsLd+/VFu/XHzx89PjJ0vLTlsp7EpNDnLNcHiOoCKOCHGqqGTkuJIEcMXKEzjYq/ahPpKK5ONCDgrQ5zATtUAy1XdqP36ydLq00G83hE/mDeDxYAeNn53S5trCapDnucSI0ZlCpk7hZ6LaBUlPMSFlfTXqKFBCfwYyc2KGAnKi2Gboto1W7kkadXNqf0NFwdSrEQK7UgCOLcqi7yhOr1ZniSU93PrQNFUVPE4FHe3V6LNJ5VFUfpVQSrNnADiCW1PqNcBdKiLXtUd2tKq6qQrabRJb1RBE9GmvCCwY1MQL2aTZsZFT5zZkqjQUn/BCR2UPs2iwQETat2RRUxBNuJ1Wjqe3ZdMCBhauWeSzi0/Nx/15dtWpKvIBqYNWyXk8EucA551CkJsG50qVJKh5DZjbKclqXVJ1N6HuurntSTOgHrp6mY1Vyk7qiopm4kYczh4D9bAwgZD67Ks77N2pl3QlG9mASTS61zV5N3Nrs0Vzr1cRNgLZLY6Kkq2wTiXndbLzlvEwQj7bdVGg3QO56ZCtAtjzyPECee+RlgLz0yH6A7HtkESALl+wTDQNsUklu4jSU2SSfCNOw2sGLCfXiKubcjyloyJVVPFiFaeXjKuMh3F5j7hXNqC0gc+8XTW+u71fv9vHNYM3Dv8CO2Sy9qvl+0JlJ9kfW3JC9bn7bTom0jB8Zej+u47ZnBG3BsEOroXSGxS0avABZ6Xdu7zZfcoavjduCcBVkv5ux+5X0B621RtxsxLvvVtY/jr+gi+A5eAFeghi8B+vgC9gBhwCDDHwD38GP2s/ar9rv2p8ROj83jnkGpp7a3/8t9PQ6</latexit>
✓ ◆
I/
q 1
I(q) = Y D with
<latexit sha1_base64="wPDAOwTPvkKCq7IYIrq8GWAxAZo=">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</latexit>
⇡
<latexit sha1_base64="NbWuObeYwifAnkNC1XrzkSn2bws=">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</latexit>
VD <latexit sha1_base64="5azTn15oqAb1bMcj1fdkf5ecDnk=">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</latexit>
2
numerical factor of order 1 1

<latexit sha1_base64="bNHNwcKqjPv2FHl5maeqNr/KhdU=">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</latexit>
<latexit
daily traded volume
q/VD
<latexit sha1_base64="w5JBpBFI7fofo0swerWHbvbOwnM=">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</latexit>
Concave price impact
[Loeb 1983, BARRA 1995, Almgren 2005,

Independently but consistently reported by many groups since 1983!
Moro 2009, Bershova 2013, Donier 2015 etc.]
D
I/
US Stocks (1983) Futures Stocks

<latexit sha1_base64="wPDAOwTPvkKCq7IYIrq8GWAxAZo=">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</latexit>
1/2
1/2
Stocks Stocks (Ancerno) Bitcoin!
1/2
1/2
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Physic of Socioeconomic System (Diapo)

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Physic of Socioeconomic System (Diapo)

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Physics of Socio-Economic Systems

3rd year course

www.EconophysiX.com Chair of Econophysics & Complex Systems

Global reach Firm

WE TRADE LIQUID 30+

Our approach History Trading Investment process

www.EconophysiX.com Chair of Econophysics & Complex Systems

www.EconophysiX.com Chair of Econophysics & Complex Systems

www.EconophysiX.com Chair of Econophysics & Complex Systems

www.EconophysiX.com Chair of Econophysics & Complex Systems

TD2 Power laws in economics: from data to modelling

TD3 Copycat and phase coexistence in a forecasting game

TD4 Ants, herding and intermittency

TD5 Networks — Google PageRank

TD6 The true statistics of financial time series

• Standard exam on paper at the end of the course

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www.EconophysiX.com Chair of Econophysics & Complex Systems

www.EconophysiX.com Chair of Econophysics & Complex Systems

Collective behaviour is the reflection of individual behaviour

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Starlings video Youtube

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www.EconophysiX.com Chair of Econophysics & Complex Systems

Bird flock Fish schools

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Bird flocks Fish schools Synchronised Fireflies

Mexican wave Love locks Nazi crowd

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Phil. Anderson (1923-) MORE IS

The behaviour of large assemblies of interacting individuals cannot be

Statistical physics has developed tools to describe these “collective

Adapted from Phil. Anderson (1977 Nobel prize) in Science (1972).

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Henri Poincaré, Comments on Bachelier’s thesis

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Without interactions there can be • no bird flocks Complex networks mediate

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www.EconophysiX.com Chair of Econophysics & Complex Systems

• Within a phase, linear theory applies

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• Within a phase, linear theory applies

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Relaxation to equilibrium in collective interacting systems can be extremely slow

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The invisible hand

e.g. Schelling segrega.on model

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Data reveals that 95% of 4𝜎 price moves in financial markets

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www.EconophysiX.com Chair of Econophysics & Complex Systems

Massive data revolution (Big data)

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A physicist is driven by phenomenology An economist is driven by axioms, consistency, and

Observation Mathematic transcription

Predictions Theory (e.g. H' = E')

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I don’t have the answer

Max Planck (1858-1947)

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Reply to the queen by the British Academy

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