A Creepy World

Didier Sornette and Peter Cauwels
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Didier Sornette: Swiss Finance Institute and ETH Zürich
Peter Cauwels: ETH Zurich; Director Quaerens CommV

No 13-55, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using the mechanics of creep in material sciences as a metaphor, we present a general framework to understand the evolution of financial, economic and social systems and to construct scenarios for the future. In a nutshell, highly non-linear out-of-equilibrium systems subjected to exogenous perturbations tend to exhibit a long phase of slow apparent stable evolution, which are nothing but slow maturations towards instabilities, failures and changes of regimes. With examples from history where a small event had a cataclysmic consequence, we propose a novel view of the current state of the world via the logical scenarios that derive, avoiding the traps of an illusionary stability and simple linear extrapolation. The endogenous scenarios are "muddling along", "managing through" and "blood red abyss". The exogenous scenarios are "painful adjustment" and "golden east".

Keywords: systemic crisis; change of regime; financial bubble; bifurcation; instability; precursors; prediction; scenarios (search for similar items in EconPapers)
JEL-codes: G01 G17 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2013-10, Revised 2014-02
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1355

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