Application of spin glass ideas in social sciences, economics and finance

Jean Philippe Bouchaud, Matteo Marsili and Jean-Pierre Nadal ()
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Jean Philippe Bouchaud: Académie des sciences [Paris, France], CFM - Capital Fund Management, X - École polytechnique - IP Paris - Institut Polytechnique de Paris
Matteo Marsili: ICTP - Abdus Salam International Centre for Theoretical Physics [Trieste]
Jean-Pierre Nadal: CAMS - Centre d'Analyse et de Mathématique sociales - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique, Biophysique et Neuroscience Théoriques - LPENS - Laboratoire de physique de l'ENS - ENS Paris - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité - Département de Physique de l'ENS-PSL - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres

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Abstract: Classical economics has developed an arsenal of methods, based on the idea of representative agents, to come up with precise numbers for next year's GDP, inflation and exchange rates, among (many) other things. Few, however, will disagree with the fact that the economy is a complex system, with a large number of strongly heterogeneous, interacting units of different types (firms, banks, households, public institutions) and different sizes. Now, the main issue in economics is precisely the emergent organization, cooperation and coordination of such a motley crowd of micro-units. Treating them as a unique "representative" firm or household clearly risks throwing the baby with the bathwater. As we have learnt from statistical physics, understanding and characterizing such emergent properties can be difficult. Because of feedback loops of different signs, heterogeneities and non-linearities, the macro-properties are often hard to anticipate. In particular, these situations generically lead to a very large number of possible equilibria, or even the lack thereof. Spin-glasses and other disordered systems give a concrete example of such difficulties. In order to tackle these complex situations, new theoretical and numerical tools have been invented in the last 50 years, including of course the replica method and replica symmetry breaking, and the cavity method, both static and dynamic. In this chapter we review the application of such ideas and methods in economics and social sciences. Of particular interest are the proliferation (and fragility) of equilibria, the analogue of satisfiability phase transitions in games and random economies, and condensation (or concentration) effects in opinion, wealth, etc.

Date: 2023
New Economics Papers: this item is included in nep-hme
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Published in Patrick Charbonneau; Enzo Marinari; Marc Mézard; Giorgio Parisi; Federico Ricci-Tersenghi; Gabriele Sicuro; Francesco Zamponi. Spin Glass Theory & Far Beyond - Replica Symmetry Breaking after 40 Years, World Scientific, pp.561-579, 2023, 978-981-127-391-9. ⟨10.1142/9789811273926_0027⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04145594

DOI: 10.1142/9789811273926_0027

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