The Self-Organized Criticality Paradigm in Economics & Finance

Autor:	Bouchaud, Jean-Philippe
Rok vydání:	2024
Předmět:	Quantitative Finance - General Finance Condensed Matter - Disordered Systems and Neural Networks Economics - General Economics
Druh dokumentu:	Working Paper
Popis:	``Self-Organised Criticality'' (SOC) is the mechanism by which complex systems spontaneously settle close to a *critical point*, at the edge between stability and chaos, and characterized by fat-tailed fluctuations and long-memory correlations. Such a scenario may explain why insignificant perturbations can generate large disruptions, through the propagation of ``avalanches'' across the system. In this short review, we discuss how SOC could offer a plausible solution to the excess volatility puzzle in financial markets and the analogue ``small shocks, large business cycle puzzle'' for the economy at large, as initially surmised by Per Bak et al. in 1993. We argue that in general the quest for efficiency and the necessity of *resilience* may be mutually incompatible and require specific policy considerations. Comment: Chapter for the proceedings of a Santa Fe summer school -- revised and improved version
Databáze:	arXiv
Externí odkaz:	http://arxiv.org/abs/2407.10284 Zobrazit plný text záznamu View this record from Arxiv