Sciences of complexity have the wind in their sails, especially among followers of new technologies. The question however is: are they any good? Clearly, can they predict? Or are they doomed to produce graphics and analogies certainly impressive, but the heuristic value is zero or almost? The search for practical applications ...
This is the grail that researchers actively stalk. We saw in a recent article that tried to simulate Dirk Helbing News Tech Buzz. Another scientist whose name has returned several times recently is that of Yane Bar-Yam, president of the Institute for Complex Systems of New England (NCEs).
It seeks to understand how complex systems arise in various fields of knowledge: ecology, economics, politics ... It attacks and the question of economic crisis, says a recent article in Wired. Bar-Yam says he spotted well in the mass of data from market fluctuations, a fundamental indicator of annunciator crash.
This is a market behavior that is characterized by a growing tendency to imitate the actors. In general, sales and purchases balance: about 50% of the shares increase when 50% down. When krash approach, "co-movement" is growing. In other words, one of two movements significantly exceeds the 50%.
Admittedly, this finding has a priori nothing innovative. Economists have long since noticed that the massive uncontrollable behavior at the origin of a "bubble" or instead a "panic" often announce crises. But there are differences between the work of Bar-Yam and this common vision. First, to this researcher, this trend is a long-term, and does not some days or even months before the "crash".
Thus, before the 2008 crisis, "co-movement" has been increasing steadily for more than four years. So it's not a situation where markets fall into a phase of rapid panic due to a reflex action. In the illustration below, the upper curve shows the development of co-movements ". The higher the level is low, the greater the tendency to imitation is important.
We see, is a behavior that is increasing in 2003. Moreover, the cause of this behavior imitation is not exogenous, ie created by external events. The phenomenon is, however, endogenous, intrinsic to the movement of the markets. For the team of Bar-Yam, it is indeed an effect of "panic", but in a panic "self-induced," which does not depend directly on external events or even "bubble" speculative although these elements can, of course, play a role in triggering amplifier crisis.
For example, about the mini-crash of September 17, 2001 (the first trading day after the attacks on the World Trade Center) Bar-Yam and his colleagues noted in their published paper on arXiv that their research tended "to confirm that this event was not only a reaction to 11 September, but was largely dependent on market dynamics.
" This ability to create something new without having to receive information from the outside world seems a fundamental characteristic of complex systems. Before work on the economy, Bar-Yam was published in 2009 an article on the biology that led to conclusions quite similar. He said the evolution of species was likely to occur within a population of purely intrinsic, by the unique interplay of genetic combinations and random mutations.
In other words, no need to invoke the need for species to adapt to an environment that would become the arbiter of change, as suggested by the classical theory of natural selection. One can only compare this new vision of evolution that markets evolve spontaneously towards "disaster" regardless of the outside world almost.
PREDICTING CHANGES The Wired article points out that the work of Bar Yam belong to a new branch called "econophysics", ie the application of social behaviors observed in Tech News Buzz equipment. In the case of economic crises, it would be a process called "phase transition", such as transforming water into ice or, alternatively, steam.
In phase transitions, a slow, almost invisible suddenly rushes to change the system state. One has the impression that the transformation takes place "by surprise". That said, the term econophysics may be new, but the study of these transitions is a known characteristic of complex systems for some time.
This is called "self-organized criticality" and this concept is central to the field for over two decades. Theories of complexity have greatly inspired Nassim Nicholas Taleb says that the effects in his famous book The Black Swan (no relation with Natalie Portman). Taleb uses the theories of complexity to mock the economists who assess the risks in terms of "Gaussian", by drawing a curve, a "medium" where the most extreme events are also the least likely.
Instead, in a vision "complex" of the economy or society, the "disaster", the "black swans" (which can also be positive, as shown by the recent revolutions in Tech Buzz Arab News) are likely to occur, and much sooner than we think. Bar Yam theories are therefore not revolutionary, but are most probably another nail in the coffin of classical economics.
This research also has the advantage of being based on a simple calculation (well, simple enough for mathematicians), involving a single parameter. It offers a way to explore and anticipate the arrival of these "disasters" and could therefore, if confirmed, have practical consequences. It would, if not for the unexpected, at least to prepare intelligently ... 
This is the grail that researchers actively stalk. We saw in a recent article that tried to simulate Dirk Helbing News Tech Buzz. Another scientist whose name has returned several times recently is that of Yane Bar-Yam, president of the Institute for Complex Systems of New England (NCEs).
It seeks to understand how complex systems arise in various fields of knowledge: ecology, economics, politics ... It attacks and the question of economic crisis, says a recent article in Wired. Bar-Yam says he spotted well in the mass of data from market fluctuations, a fundamental indicator of annunciator crash.
This is a market behavior that is characterized by a growing tendency to imitate the actors. In general, sales and purchases balance: about 50% of the shares increase when 50% down. When krash approach, "co-movement" is growing. In other words, one of two movements significantly exceeds the 50%.
Admittedly, this finding has a priori nothing innovative. Economists have long since noticed that the massive uncontrollable behavior at the origin of a "bubble" or instead a "panic" often announce crises. But there are differences between the work of Bar-Yam and this common vision. First, to this researcher, this trend is a long-term, and does not some days or even months before the "crash".
Thus, before the 2008 crisis, "co-movement" has been increasing steadily for more than four years. So it's not a situation where markets fall into a phase of rapid panic due to a reflex action. In the illustration below, the upper curve shows the development of co-movements ". The higher the level is low, the greater the tendency to imitation is important.
We see, is a behavior that is increasing in 2003. Moreover, the cause of this behavior imitation is not exogenous, ie created by external events. The phenomenon is, however, endogenous, intrinsic to the movement of the markets. For the team of Bar-Yam, it is indeed an effect of "panic", but in a panic "self-induced," which does not depend directly on external events or even "bubble" speculative although these elements can, of course, play a role in triggering amplifier crisis.
For example, about the mini-crash of September 17, 2001 (the first trading day after the attacks on the World Trade Center) Bar-Yam and his colleagues noted in their published paper on arXiv that their research tended "to confirm that this event was not only a reaction to 11 September, but was largely dependent on market dynamics.
" This ability to create something new without having to receive information from the outside world seems a fundamental characteristic of complex systems. Before work on the economy, Bar-Yam was published in 2009 an article on the biology that led to conclusions quite similar. He said the evolution of species was likely to occur within a population of purely intrinsic, by the unique interplay of genetic combinations and random mutations.
In other words, no need to invoke the need for species to adapt to an environment that would become the arbiter of change, as suggested by the classical theory of natural selection. One can only compare this new vision of evolution that markets evolve spontaneously towards "disaster" regardless of the outside world almost.
PREDICTING CHANGES The Wired article points out that the work of Bar Yam belong to a new branch called "econophysics", ie the application of social behaviors observed in Tech News Buzz equipment. In the case of economic crises, it would be a process called "phase transition", such as transforming water into ice or, alternatively, steam.
In phase transitions, a slow, almost invisible suddenly rushes to change the system state. One has the impression that the transformation takes place "by surprise". That said, the term econophysics may be new, but the study of these transitions is a known characteristic of complex systems for some time.
This is called "self-organized criticality" and this concept is central to the field for over two decades. Theories of complexity have greatly inspired Nassim Nicholas Taleb says that the effects in his famous book The Black Swan (no relation with Natalie Portman). Taleb uses the theories of complexity to mock the economists who assess the risks in terms of "Gaussian", by drawing a curve, a "medium" where the most extreme events are also the least likely.
Instead, in a vision "complex" of the economy or society, the "disaster", the "black swans" (which can also be positive, as shown by the recent revolutions in Tech Buzz Arab News) are likely to occur, and much sooner than we think. Bar Yam theories are therefore not revolutionary, but are most probably another nail in the coffin of classical economics.
This research also has the advantage of being based on a simple calculation (well, simple enough for mathematicians), involving a single parameter. It offers a way to explore and anticipate the arrival of these "disasters" and could therefore, if confirmed, have practical consequences. It would, if not for the unexpected, at least to prepare intelligently ...
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