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Econophysics Forum wrote a new blog post titled Evolutionary Model of a Anonymous Consumer Durable Market
A analytic model is presented that considers the evolution of a market of durable goods. The model suggests that after introduction goods spread always according to Bass diffusion. However, this phase will be followed for durable consumer goods by a diffusion process governed by a variation-selection-reproduction mechanism and the growth dynamics can be described by a replicator equation.The theory suggests that products play the role of species in biological evolutionary models. It implies that the evolution of man made products can be arranged into an evolutionary tree. The model also...
2149 days ago
Econophysics Forum wrote a new blog post titled Economics 2.0: The Natural Step towards A Self-Regulating, Participatory Market Society
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 sustainability and innovation. Can we still rely on conventional economic thinking or do we need a new approach? I argue that, as the complexity of socio-economic systems increases, networked decision-making and bottom-up self-regulation will be more and more important features. It will be explained why, besides the "homo economicus" with strictly self-regarding...
2159 days ago
Econophysics Forum wrote a new blog post titled Self-healing networks: redundancy and structure
We introduce the concept of self-healing in the field of complex networks. Obvious applications range from infrastructural to technological networks. By exploiting the presence of redundant links in recovering the connectivity of the system, we introduce self-healing capabilities through the application of distributed communication protocols granting the "smartness" of the system. We analyze the interplay between redundancies and smart reconfiguration protocols in improving the resilience of networked infrastructures to multiple failures; in particular, we measure the fraction of nodes still...
2159 days ago
Econophysics Forum wrote a new blog post titled A framework for the calibration of social simulation models
Simulation with agent-based models is increasingly used in the study of complex socio-technical systems and in social simulation in general. This paradigm offers a number of attractive features, namely the possibility of modeling emergent phenomena within large populations. As a consequence, often the quantity in need of calibration may be a distribution over the population whose relation with the parameters of the model is analytically intractable. Nevertheless, we can simulate. In this paper we present a simulation-based framework for the calibration of agent-based models with...
2159 days ago
Econophysics Forum wrote a new blog post titled Modeling self-sustained activity cascades in socio-technical networks
The ability to understand and eventually predict the emergence of information and activation cascades in social networks is core to complex socio-technical systems research. However, the complexity of social interactions makes this a challenging enterprise. Previous works on cascade models assume that the emergence of this collective phenomenon is related to the activity observed in the local neighborhood of individuals, but do not consider what determines the willingness to spread information in a time-varying process. Here we present a mechanistic model that accounts for the temporal...
2159 days ago
Econophysics Forum wrote a new blog post titled Competition-induced criticality in a model of meme popularity
Heavy-tailed distributions of meme popularity occur naturally in a model of meme diffusion on social networks. Competition between multiple memes for the limited resource of user attention is identified as the mechanism that poises the system at criticality. The popularity growth of each meme is described by a critical branching process, and asymptotic analysis predicts power-law distributions of popularity with very heavy tails (exponent $\alpha 2159 days ago Econophysics Forum wrote a new blog post titled How to Get Rid of Demand-Supply-Equilibrium for Good This paper provides a substantial reconceptualization of the serial clearing of the product market on the basis of structural axioms. The change of premises is required simply because from the accustomed premises only the accustomed conclusions can be derived and these are known to be inapplicable in the real world. This holds in particular for the still popular idea that the working of a market can be described in terms of the triad demand function–supply function–equilibrium. Structural axiomatization provides the complete and consistent picture of interrelated product market events. 2160 days ago Econophysics Forum wrote a new blog post titled Ergodic transition in a simple model of the continuous double auction We study a phenomenological model for the continuous double auction, equivalent to two independent$M/M/1\$ queues. The continuous double auction defines a continuous-time random walk for trade prices. The conditions for ergodicity of the auction are derived and, as a consequence, three possible regimes in the behavior of prices and logarithmic returns are observed. In the ergodic regime, prices are unstable and one can observe an intermittent behavior in the logarithmic returns. On the contrary, non-ergodicity triggers stability of prices, even if two different regimes can be seen.
2165 days ago
Econophysics Forum wrote a new blog post titled Direct Evidence for Synchronization in Japanese Business Cycle
We have analyzed the Indices of Industrial Production (Seasonal Adjustment Index) for a long period of 240 months (January 1988 to December 2007) to develop a deeper understanding of the economic shocks. The angular frequencies estimated using the Hilbert transformation, are almost identical for the 16 industrial sectors. Moreover, the partial phase locking was observed for the 16 sectors. These are the direct evidence of the synchronization in the Japanese business cycle. We also showed that the information of the economic shock is carried by the phase time-series. The common shock and...
2165 days ago
Econophysics Forum wrote a new blog post titled Scaling symmetry, renormalization, and time series modeling
We present and discuss a stochastic model of financial assets dynamics based on the idea of an inverse renormalization group strategy. With this strategy we construct the multivariate distributions of elementary returns based on the scaling with time of the probability density of their aggregates. In its simplest version the model is the product of an endogenous auto-regressive component and a random rescaling factor embodying exogenous influences. Mathematical properties like increments' stationarity and ergodicity can be proven. Thanks to the relatively low number of parameters, model...
2165 days ago
Econophysics Forum wrote a new blog post titled Monte Carlo approximation to optimal investment
This paper sets up a methodology for approximately solving optimal investment problems using duality methods combined with Monte Carlo simulations. In particular, we show how to tackle high dimensional problems in incomplete markets, where traditional methods fail due to the curse of dimensionality.
2165 days ago
Econophysics Forum wrote a new blog post titled Emergence of hierarchy in cost driven growth of spatial networks
One of the most important features of spatial networks such as transportation networks, power grids, Internet, neural networks, is the existence of a cost associated with the length of links. Such a cost has a profound influence on the global structure of these networks which usually display a hierarchical spatial organization. The link between local constraints and large-scale structure is however not elucidated and we introduce here a generic model for the growth of spatial networks based on the general concept of cost benefit analysis. This model depends essentially on one single scale and...
2165 days ago
Econophysics Forum wrote a new blog post titled Analysis of Realized Volatility in Two Trading Sessions of the Japanese Stock Market
We analyze realized volatilities constructed using high-frequency stock data on the Tokyo Stock Exchange. In order to avoid non-trading hours issue in volatility calculations we define two realized volatilities calculated separately in the two trading sessions of the Tokyo Stock Exchange, i.e. morning and afternoon sessions. After calculating the realized volatilities at various sampling frequencies we evaluate the bias from the microstructure noise as a function of sampling frequency. Taking into account of the bias to realized volatility we examine returns standardized by realized...
2165 days ago
Econophysics Forum wrote a new blog post titled Empirical Analysis of Stochastic Volatility Model by Hybrid Monte Carlo Algorithm
The stochastic volatility model is one of volatility models which infer latent volatility of asset returns. The Bayesian inference of the stochastic volatility (SV) model is performed by the hybrid Monte Carlo (HMC) algorithm which is superior to other Markov Chain Monte Carlo methods in sampling volatility variables. We perform the HMC simulations of the SV model for two liquid stock returns traded on the Tokyo Stock Exchange and measure the volatilities of those stock returns. Then we calculate the accuracy of the volatility measurement using the realized volatility as a proxy of the true...
2165 days ago
Econophysics Forum wrote a new blog post titled Are financial markets just another aspect of Nature?
The question on the title came through my mind one day as I keep in one hand a paper in nuclear physics and in the other hand a paper in finance and surprisingly conclude that the same formula appear in both articles*. Phenomena from apparently completely different field of research were solved with the help of same equation. Things are getting even weirder saying that the formula I was talking about is the time-independent Schrodinger equation.
2165 days ago
Econophysics Forum wrote a new blog post titled Statistical Mechanics of Competitive Resource Allocation
Demand outstrips available resources in most situations, which gives rise to competition, interaction and learning. In this article, we review a broad spectrum of multi-agent models of competition and the methods used to understand them analytically. We emphasize the power of concepts and tools from statistical mechanics to understand and explain fully collective phenomena such as phase transitions and long memory, and the mapping between agent heterogeneity and physical disorder. As these methods can be applied to any large-scale model made up of heterogeneous adaptive agent with non-linear...
2171 days ago
Econophysics Forum wrote a new blog post titled Behavioural breaks in the heterogeneous agent model: the impact of herding, overconfidence, and market sentiment
The main aim of this work is to incorporate selected findings from behavioural finance into a Heterogeneous Agent Model using the Brock and Hommes (1998) framework. Behavioural patterns are injected into an asset pricing framework through the so-called `Break Point Date', which allows us to examine their direct impact. In particular, we analyse the dynamics of the model around the behavioural break. Price behaviour of 30 Dow Jones Industrial Average constituents covering five particularly turbulent U.S. stock market periods reveals interesting pattern in this aspect. To replicate it, we apply...
2171 days ago
Econophysics Forum wrote a new blog post titled The Effect of Growth On Equality in Models of the Economy
We investigate the relation between economic growth and equality in a modified version of the agent-based asset exchange model (AEM). The modified model is a driven system that for a range of parameter space is effectively ergodic in the limit of an infinite system. We find that the belief that "a rising tide lifts all boats" does not always apply, but the effect of growth on the wealth distribution depends on the nature of the growth. In particular, we find that the rate of growth, the way the growth is distributed, and the percentage of wealth exchange determine the degree of equality. We...
2171 days ago
Econophysics Forum wrote a new blog post titled The predictability of consumer visitation patterns
We consider hundreds of thousands of individual economic transactions to ask: how predictable are consumers in their merchant visitation patterns? Our results suggest that, in the long-run, much of our seemingly elective activity is actually highly predictable. Notwithstanding a wide range of individual preferences, shoppers share regularities in how they visit merchant locations over time. Yet while aggregate behavior is largely predictable, the interleaving of shopping events introduces important stochastic elements at short time scales. These short- and long-scale patterns suggest a...
2171 days ago
Econophysics Forum wrote a new blog post titled IMDB network revisited: unveiling fractal and modular properties from a typical small-world network
We study a subset of the movie collaboration network, imdb.com, where only adult movies are included. We show that there are many benefits in using such a network, which can serve as a prototype for studying social interactions. We find that the strength of links, i.e., how many times two actors have collaborated with each other, is an important factor that can significantly influence the network topology. We see that when we link all actors in the same movie with each other, the network becomes small-world, lacking a proper modular structure. On the other hand, by imposing a threshold on the...
2171 days ago