Instability and Information

Felix Patzelt

Papers from arXiv.org

Abstract: Many complex systems exhibit extreme events far more often than expected for a normal distribution. This work examines how self-similar bursts of activity across several orders of magnitude can emerge from first principles in systems that adapt to information. Surprising connections are found between two apparently unrelated research topics: hand-eye coordination in balancing tasks and speculative trading in financial markets. Seemingly paradoxically, locally minimising fluctuations can increase a dynamical system's sensitivity to unpredictable perturbations and thereby facilitate global catastrophes. This general principle is studied in several domain-specific models and in behavioural experiments. It explains many findings in both fields and resolves an apparent antinomy: the coexistence of stabilising control or market efficiency and perpetual instabilities resembling critical phenomena in physical systems.

Date: 2015-11
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1511.03732

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