Complexity Research and Economic Growth

1. Complexity ResearchandEconomic Growth Sorin SolomonRacah Institute of Physics HUJ Israel Complex Multi-Agent Systems Division, ISI TurinLagrange Interdisciplinary Lab for Excellence In Complexity

2. More Is DifferentSorin SolomonHUJ and ISI Real world is controlled … • by the exceptional, not the mean; • by the catastrophe, not the steady drip; • by the very rich, not the ‘middle class’. we need to free ourselves from ‘average’ thinking. Philip Anderson

3. Simplest Example of a “More is Different” Transition Extrapolation? ? 1cm The breaking of macroscopic linear extrapolation 1Kg 1Kg 101 97 99 1cm 1Kg 950C BOILING PHASE TRANSITIONMore is different: a single molecule does not boil at 100C0

4. Example of “MORE IS DIFFERENT” transition in Finance: Instead of Water Level: -economic Index(Dow-Jones etc…) 97 99 101 95 The crashes are the result of many traders interactions.MORE is DIFFERENT: A market with a single trader would never have crashes

5. Instead of temperature (energy / matter): • Exchange rate/interest rate • Value At Risk / liquid funds • Equity Price / Dividends • Equity Price / fundamental value • Taxation (without representation)/ Tea

6. Product Propagation Bass extrapolation formulavs microscopic representation VCR Actual sales Extrapolation CARS in USA 1895-1930 DVD Reality curves

7. Stock market shock explained Physicists model recent trading frenzy. Market 'spikes' are seen by traders as freak events.Physicists expect them Lev Muchnik Phys. Scripta

8. Stock market shock explained Physicists model recent trading frenzy. Market 'spikes' are seen by traders as freak events.Physicists expect them Small changes in product quality, price, external conditions can produce large effects(e.g. large market fluctuations) Small deterioration in credit market can trigger large waves of bankruptcies

9. “Levy, Solomon and Levy'sMicroscopic Simulation of Financial Markets points us towards the future of financial economics. If we restrict ourselves to models which can be solved analytically, we will be modeling for our mutual entertainment, not to maximize explanatory or predictive power."--HARRY M. MARKOWITZ, Nobel Laureate in Economics

10. Executive Abstract: The Multi-Agent Complex Systems approach identifies-singular local elements of change / growth (even at early stageswhere, as whole, the system seems in regress) • spatio-temporal patterns of growth relevant resources - socio-economic / human interactive causal mechanismsleading to growth (e.g. education / cultural level / tradition). Concrete interdisciplinary example: post-liberalization Poland- identifies emergence of resilient, sustainable, developing patterns likely to support sustainable global growth - prediction of (space-time) singular fluctuation patterns that may lead to increased social inequality and economic instability(but also to novelty emergence) The classical paradigms fail in predicting emergence of novelty / development in bio/ cogni / socio/ econo systems - Extension of study to other regions / disciplines

11. “Almost all the social phenomena… obey thelogistic growth”Elliot W Montroll I would urge…logistic equationearly in the education … in the everyday world ofpolitics and economicsLord Robert May Growth ~a Size - Nonlinear Terms(Competion/Saturation) “continuum”Logistic Solution:uniform in space and time: Size a > 0 a < 0 TIME

12. In reality, in Growth ~a Size, ais the result ofmulti-agent spatio-temporal distributed discrete contributions This leads to a complex solution presenting fractal / intermittentcollective macro-objects with self-organized adaptive behavior Size Logistic Multi-Agent Prediction Theorem:resilience and sustainabilityeven for <a><0 <a>< 0 Logistic Differential Equation a<0 TIME

13. EXAMPLE of Theoretical Applied Science GNP Education 88 89 90 91 92 THEOREM (Statistical Mechanics Mathematics) APPLICATION: Liberalization Experiment Poland Economy after 1989 MACRO decay 1990 MACRO decay(90) +MICRO growth 1991 MICRO growth(91) ___________________ => MACRO growth 1992MACRO growth (92) Complexity prediction Global analysis prediction Maps by the group of Social Psychologist Andrzej Nowak (Warsaw U.)

14. Economic Growth is in turn “A’s”for Political Transformation Nowak Voting for Reformist Parties

15. fractal space distribution Prediction of campaign success (15/17) Goldenberg Air-view of a sub-urban neighborhood; crosses on the roofs indicate air-conditioner purchase

16. Desertification/ Reclaim space-time localized patterns Lavee+Sarah Mediterranean; uniform Semi-arid; patchy Desert;uniform 500mm 200mm

17. Theorem: Logistic Multi-Agent Systems=>Intermittent Fluctuations Globalization (efficient but unstable fluctuations) Local Consumption Economy (inefficient but very stable (if population is stable))

18. -emergence of High-Tech communities-start-ups connections to previous businesses-entrepreneurs emerging from old businesses-partners having previous common institutions

19. Future and on-going studies Romania Piemonte Piemonte Belarus

20. Conclusions • The connections between the main ubiquitous complexity features Pareto-Zipf scaling laws / Levy-stable fat-tail fluctuations,Fractal-Intermittent singular spatio-temporal Growth patterns,Logistic Malthus-Verhulst-Lotka-Volterra-Eigen-Schuster systemPercolation, phase transitions, Emergence of adaptive objects can be understood and expressed within a comprehensive coherent interdisciplinary research framework. • Its applicability in monitoring and inducing novelty emergence, social change, stable economic growth and sustainable development has been demonstrated.