Related papers: Toward Economics as a New Complex System
Despite all our great advances in science, technology and financial innovations, many societies today are struggling with a financial, economic and public spending crisis, over-regulation, and mass unemployment, as well as lack of…
The problem of allocating scarce items to individuals is an important practical question in market design. An increasingly popular set of mechanisms for this task uses the concept of market equilibrium: individuals report their preferences,…
Keeping a basic tenet of economic theory, rational expectations, we model the nonlinear positive feedback between agents in the stock market as an interplay between nonlinearity and multiplicative noise. The derived hyperbolic stochastic…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
The leading account of several salient observable features of our universe today is provided by the theory of cosmic inflation. But an important and thus far intractable question is whether inflation is generic, or whether it is finely…
The state of economic theory and accumulated facts from the different branches of the economic science require to analyze the concept of the description of economy systems. The economic reality generates the problems the solution of that is…
Economic engineering is a new field wherein economic systems are modelled in the same manner as traditional mechanical and electrical engineering systems. In this paper, we use Newton's theory of motion as the basis for the theory of…
Modern approaches to stock pricing in quantitative finance are typically founded on the 'Black-Scholes model' and the underlying 'random walk hypothesis'. Empirical data indicate that this hypothesis works well in stable situations but, in…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
In physics the value of a theory is measured by its agreement with experimental data. But how should the physics community gauge the value of an emerging theory that has not been tested experimentally as of yet? With no reality check, a…
It has been shown that financial news leads to the fluctuation of stock prices. However, previous work on news-driven financial market prediction focused only on predicting stock price movement without providing an explanation. In this…
General equilibrium equations in economics play the same role with many-body Newtonian equations in physics. Accordingly, each solution of the general equilibrium equations can be regarded as a possible microstate of the economic system.…
We study the concept of financial bubble in a market model endowed with a set of probability measures, typically mutually singular to each other. In this setting we introduce the notions of robust bubble and robust fundamental value in a…
We develop a method to estimate producers' productivity beliefs when output quantities and input prices are unobservable, and we use it to evaluate the market for science. Our model of researchers' labor supply shows how their willingness…
Complex systems are usually non-stationary and their dynamics is often dominated by collective effects. Collectivity, defined as coherent motion of the whole system or of some of its parts, manifests itself in the time-dependent structures…
We review an emerging body of work by physicists addressing questions of economic organization and function. We suggest that, beyond simply employing models familiar from physics to economic observables, remarkable regularities in economic…
Agent-based models (ABMs) are fit to model heterogeneous, interacting systems like financial markets. We present the latest advances in Evology: a heterogeneous, empirically calibrated market ecology agent-based model of the US stock…
The 2021 Nobel Prize in Economics recognized an epistemology of causal inference based on the Rubin causal model (Rubin 1974), which merits broader attention in philosophy. This model, in fact, presupposes a logical principle of…
We find that the CAPM fails to explain the small firm effect even if its non-parametric form is used which allows time-varying risk and non-linearity in the pricing function. Furthermore, the linearity of the CAPM can be rejected, thus the…