Related papers: Big is Fragile: An Attempt at Theorizing Scale
Financial derivatives have often been criticized as casino-style betting instruments. It turns out that many naive ways of making them are indeed equivalent to gambling. Fortunately, this inadvertent effect can be understood and prevented.…
We provide a mathematical definition of fragility and antifragility as negative or positive sensitivity to a semi-measure of dispersion and volatility (a variant of negative or positive "vega") and examine the link to nonlinear effects. We…
Many complex systems, such as communication networks, display a surprising degree of robustness: while key components regularly malfunction, local failures rarely lead to the loss of the global information-carrying ability of the network.…
The problem of efficient sharing of a resource is nearly ubiquitous. Except for pure public goods, each agent's use creates a negative externality; often the negative externality is so strong that efficient sharing is impossible in the…
This paper is devoted to the theoretical study of the efficiency, namely, stability of some greedy algorithms. In the greedy approximation theory researchers are mostly interested in the following two important properties of an algorithm --…
In this paper we discuss a scaling approach to business fluctuations. Our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to (re)discover a set of stylized facts which have to be…
A probability model exhibits instability if small changes in a data outcome result in large, and often unanticipated, changes in probability. This instability is a property of the probability model, given by a distributional form and a…
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…
Empirical evidence suggests that even the most competitive markets are not strictly efficient. Price histories can be used to predict near future returns with a probability better than random chance. Many markets can be considered as {\it…
Recent studies have found evidence of a negative association between economic complexity and inequality at the country level. Moreover, evidence suggests that sophisticated economies tend to outsource products that are less desirable (e.g.…
At the end of the 19th century the logician C.S. Peirce coined the term "fallibilism" for the "... the doctrine that our knowledge is never absolute but always swims, as it were, in a continuum of uncertainty and of indeterminacy". In terms…
In recent times we hear increasingly often about cyber attacks on various commercial and strategic sites that manage to escape any defense. In this article, we model such attacks on networks via stochastic processes and predict the time of…
The understanding of cascading failures in complex systems has been hindered by the lack of realistic large-scale modeling and analysis that can account for variable system conditions. Here, using the North American power grid, we identify,…
We study a dynamical model of interconnected firms which allows for certain market imperfections and frictions, restricted here to be myopic price forecasts and slow adjustment of production. Whereas the standard rational equilibrium is…
Take up of microcredit by the poor for investment in businesses or human capital turned out to be very low. We show that this could be explained by risk aversion, without relying on fixed costs or other forms of non-convexity in the…
Replication is complicated in psychological research because studies of a given psychological phenomenon can never be direct or exact replications of one another, and thus effect sizes vary from one study of the phenomenon to the next--an…
Large-scale computing systems today are assembled by numerous computing units for massive computational capability needed to solve problems at scale, which enables failures common events in supercomputing scenarios. Considering the…
Common asset holdings are widely believed to have been the primary vector of contagion in the recent financial crisis. We develop a network approach to the amplification of financial contagion due to the combination of overlapping…
We investigate the possible origin of hierarchical structures in complex systems describable in terms of a finite and small number of parameters which control the behavioral pattern at each level of organization. We argue that the…
We present an empirical analysis of the microstructure of financial markets and, in particular, of the static and dynamic properties of liquidity. We find that on relatively large time scales (15 minutes) large price fluctuations are…