Related papers: Big is Fragile: An Attempt at Theorizing Scale
Complex evolving systems such as the biosphere, ecosystems and societies exhibit sudden collapses, for reasons that are only partially understood. Here we study this phenomenon using a mathematical model of a system that evolves under…
The recent financial crisis of 2008 and the 2011 indebtedness of Greece highlight the importance of understanding the structure of the global financial network. In this paper we set out to analyze and characterize this network, as captured…
We show that capital flow (CF) volatility exerts an adverse effect on exchange rate (FX) volatility, regardless of whether capital controls have been put in place. However, this effect can be significantly moderated by certain macroeconomic…
Applications from finance to epidemiology and cyber-security require accurate forecasts of dynamic phenomena, which are often only partially observed. We demonstrate that a system's predictability degrades as a function of temporal…
Some risks have extremely high stakes. For example, a worldwide pandemic or asteroid impact could potentially kill more than a billion people. Comfortingly, scientific calculations often put very low probabilities on the occurrence of such…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
Bitcoin uses blockchain technology to maintain transactions order and provides probabilistic guarantee to prevent double-spending, assuming that an attacker's computational power does not exceed %50 of the network power. In this paper, we…
Why are human societies unstable? Theories based on the observation of recurring patterns in historical data indicate that economic inequality, as well as social factors are key drivers. So far, models of this phenomenon are more…
We develop a dynamic model of cascading failures in a financial network whereby cross-holdings are viewed as feedback, external assets investments as inputs and failure penalties as static nonlinearities. We provide sufficient milder and…
The character of the time-asymptotic evolution of physical systems can have complex, singular behavior with variation of a system parameter, particularly when chaos is involved. A perturbation of the parameter by a small amount $\epsilon$…
Robust control theory has been successfully applied to numerous real-world problems using a small set of devices called {\it controllers}. However, the real systems represented by networks contain unreliable components and modern robust…
The mechanisms underlying cascading failures are often modeled via the paradigm of self-organized criticality. Here we introduce a simple model where nodes self-organize to be either weak or strong to failure which captures the trade-off…
Empirical science needs to be based on facts and claims that can be reproduced. This calls for replicating the studies that proclaim the claims, but practice in most fields still fails to implement this idea. When such studies emerged in…
We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called "value investing", i.e. systematically attempting to buy underpriced assets. When funds…
A crucial challenge in network theory is the study of the robustness of a network after facing a sequence of failures. In this work, we propose a dynamical definition of network's robustness based on Information Theory, that considers…
The resilience of electric power grids is threatened by natural hazards. Climate-related hazards are becoming more frequent and intense due to climate change. Statistical analyses clearly demonstrate a rise in the number of incidents (power…
This paper proposes strategies for designing a system whose computational model is subject to aleatory and epistemic uncertainty. Aleatory variables, which are caused by randomness in physical parameters, are draws from a possibly unknown…
We examine the issue of stability of probability in reasoning about complex systems with uncertainty in structure. Normally, propositions are viewed as probability functions on an abstract random graph where it is implicitly assumed that…
We study how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability of long slumps. We propose a theory in which the positive interaction between firm entry, competition and factor supply can give…
Many critical infrastructure systems have network structure and are under stress. Despite their national importance, the complexity of large-scale transport networks means we do not fully understand their vulnerabilities to cascade…