Complexity Researchand

Economic GrowthSorin Solomon

Racah Institute of Physics HUJ Israel Complex Multi-Agent Systems Division, ISI Turin

Lagrange Interdisciplinary Lab for Excellence In Complexity

More Is DifferentSorin Solomon

HUJ and ISI

Real world is controlled …– by the exceptional, not the mean; – by the catastrophe, not the steady drip; – by the very rich, not the ‘middle class’.

we need to free ourselves from ‘average’ thinking.

Philip Anderson

950C

1Kg

1cm

97

1cm

1Kg

99

1Kg

101

The breaking of macroscopic linear extrapolation

?Extrapolation?

BOILING PHASE TRANSITION More is different: a single molecule does not boil at 100C0

Simplest Example of a “More is Different” Transition

95 97 99 101

Example of “MORE IS DIFFERENT” transition in Finance:

Instead of Water Level: -economic Index(Dow-Jones etc…)

The crashes are the result of many traders interactions.MORE is DIFFERENT: A market with a single trader would never have crashes

Instead of temperature (energy / matter):

Exchange rate/interest rate

Value At Risk / liquid funds

Equity Price / Dividends

Equity Price / fundamental value

Taxation (without representation)/ Tea

Reality curves

DVD

VCR

CARS in USA 1895-1930

Product Propagation

Bass extrapolation formula vs

microscopic representation

Actual sales

Extrapolation

Stock market shock explainedPhysicists model recent trading frenzy.

Market 'spikes' are seen by traders as freak events.Physicists expect them

Lev Muchnik Phys. Scripta

Stock market shock explainedPhysicists model recent trading frenzy.

Market 'spikes' are seen by traders as freak events.Physicists expect them

Small changes in product quality, price, external conditions can produce large effects(e.g. large market fluctuations)

Small deterioration in credit market can trigger large waves of bankruptcies

“Levy, Solomon and Levy's

Microscopic Simulation of Financial Markets

points us towards the future of financial economics.

If we restrict ourselves to models which can be solved analytically, we will be modeling for our mutual entertainment, not to maximize explanatory or predictive power."

--HARRY M. MARKOWITZ, Nobel Laureate in Economics

Executive Abstract:

The Multi-Agent Complex Systems approach identifies-singular local elements of change / growth (even at early stages where, as whole, the system seems in regress)

-spatio-temporal patterns of growth relevant resources - socio-economic / human interactive causal mechanisms leading to growth (e.g. education / cultural level / tradition).

Concrete interdisciplinary example: post-liberalization Poland- identifies emergence of resilient, sustainable, developing patterns likely to support sustainable global growth

- prediction of (space-time) singular fluctuation patterns that may lead to increased social inequality and economic instability (but also to novelty emergence)

The classical paradigms fail in predicting emergence of novelty / development in bio/ cogni / socio/ econo systems

- Extension of study to other regions / disciplines

“Almost all the social phenomena…

obey the logistic growth” Elliot W Montroll

I would urge… logistic equation early in the education

… in the everyday world of politics and economics Lord Robert May

- Nonlinear Terms (Competion/Saturation) Growth ~ Size“continuum” Logistic Solution: uniform in space and time:

< 0

Size

TIME

In reality, in Growth ~ Size, is the result of multi-agent spatio-temporal distributed discrete contributions

This leads to a complex solution presenting fractal / intermittentcollective macro-objects with self-organized adaptive behavior

Theorem: resilience and sustainability

even for <><0

Logistic

Differential Equation < 0

Logistic Multi-Agent Prediction

TIME

Size

EXAMPLE of Theoretical Applied Science

APPLICATION: Liberalization Experiment Poland Economy after 1989

+ MICRO growth___________________

=> MACRO growth

1990 MACRO decay (90)

1992 MACRO growth (92)

1991 MICRO growth (91)

GNP

89 90 91 92

THEOREM (Statistical Mechanics Mathematics)

Global analysis prediction

Complexity prediction

Education 88

MACRO decay

Maps by the group of Social Psychologist Andrzej Nowak (Warsaw U.)

Economic Growth is in turn “A’s” for Political Transformation

Voting for Reformist Parties

Nowak

fractal space distributionPrediction of campaign success (15/17) Goldenberg

Air-view of a sub-urban neighborhood;

crosses on the roofs indicate air-conditioner purchase

Desertification/ Reclaim space-time localized patterns

Mediterranean; uniform 500mm

Semi-arid; patchy

Desert;uniform200mm

Lavee+Sarah

Globalization (efficient but unstable fluctuations)

Local Consumption Economy (inefficient but very stable (if population is stable))

Theorem: Logistic Multi-Agent Systems=>Intermittent Fluctuations

-emergence of High-Tech communities-start-ups connections to previous businesses-entrepreneurs emerging from old businesses-partners having previous common institutions

Piemonte

Belarus

Piemonte

Romania

Future and on-going studies

Conclusions• The connections between the main

ubiquitous complexity features Pareto-Zipf scaling laws / Levy-stable fat-tail fluctuations,

Fractal-Intermittent singular spatio-temporal Growth patterns, Logistic Malthus-Verhulst-Lotka-Volterra-Eigen-Schuster system Percolation, phase transitions, Emergence of adaptive objects

can be understood and expressed within a comprehensive coherent interdisciplinary research framework.

• Its applicability in monitoring and inducing novelty emergence, social change, stable economic growth and sustainable development has been demonstrated.