Human Complex Systems in the Economy and in Finance

Paul Jorion, Ph.D.

Paul Jorion, Ph.D.UCLA,

October 16, 2007

Particles and fields

• Agent-Based Models and Equation-Based Models

• The complexity approach amounts to being prepared to adopt both simultaneously

• The two approaches should be consistent

• If both ABM and EBM can be produced there is evidence of emergence

Reasons vs. causes

• Requires clarification of “objectivity” / “subjectivity”

• Complement each other: final cause vs. efficient cause

• Structure vs. sentiment

• Field: cause – structure; Particle: reason – sentiment

• Agents are able to interrupt positive feedbacks

• Following a rule: when reason and cause conflate

Economics and finance?

• Methodological individualism as an obstacle

• When the whole is bigger than the sum of the parts

• What methodological individualism fails to explain

• The collective may emerge although individuals are unaware of it

• Production responding to consumption requirements

• Family size

• Carrying capacity vs. witchcraft accusations• “Reasons” may be misguided

The “invisible hand” in nature

• von Foerster’s magnetized cubes

• termite mounds

• Self-organization or the shape of randomness?

• The shape results from constraints on the building blocks or on the builders

The “invisible hand” on the markets

• Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776)

• Aristotle’s “philia”

• Prices and the predator / prey model (Lotka-Volterra)

• Actors may erroneously believe their representations and strategies lead to the final outcome

References (1) Paul Jorion, All-brother crews in the North-Atlantic.

Canadian Review of Sociology and Anthropology, 19, 4, 1982: 513 526

Geneviève Debos & Paul Jorion, La transmission des savoirs, Maison des Sciences de l’Homme, Paris, 1984

Paul Jorion, Chayanov should be right: Testing "Chayanov's Rule" in a French fishing community. in E.P. Durrenberger (ed.), Chayanov, Peasants and Economic Anthropology, Academic Press, New York – London, 1984: 71-95.

Paul Jorion, Le sujet dans la parenté africaine. in Aspects du malaise dans la civilisation. Psychanalyse au CNRS, Navarin, Paris, 1987: 174-181

References (2) Paul Jorion, Accounting for human activity through physics,

Cybernetics and Systems, 35, No 2-3, 2004: 275-284; http://eclectic.ss.uci.edu/~drwhite/EMCSR02papers/Jorion_EMCSR.PDF

Paul Jorion, Adam Smith’s “Invisible Hand” Revisited, Proceedings of the 1st World Conference on Simulation of Social Systems, Kyoto, August 2006, Vol. I, Springer Verlag : 247-254 http://www.pauljorion.com/blog/wp-content/uploads/2007/04/adamsmith-kyoto_rev.pdf

Paul Jorion, Reasons vs. Causes. Emergence as experienced by the human agent, Structure and Dynamics: eJournal of Anthropological and Related Sciences: Vol. 2: No. 1, 2007: Article 1 http://repositories.cdlib.org/imbs/socdyn/sdeas/vol2/iss1/art1/

Paul Jorion, Stock prices and the shape of randomness, Oct. 5, 2007 http://www.pauljorion.com/blog_en/?p=76