Complexity & Networks seminar series, Imperial College London(s)
Title: The influence of structure on the emergent dynamics of financial markets
Speaker: Prof Doyne Farmer
Co-Director, Complexity Economics, Institute for New Economic Thinking at the Oxford Martin School
Oxford University
Abstract:
The requirement that theories in economics have “economic content”, i.e. that agents self consistently maximize preferences, imposes a heavy restriction on scientific progress, as all too often the important structure of problems has to be omitted in service of tractability. I will give some examples where properly understanding the structure of financial problems is essential to understanding economic phenomena, and where developing an equilibrium model in the usual way is a distraction. Among these will be (1) contagion via overlapping portfolio risk; (2) a quantitative model of market impact; and (3) amplification of instabilities due to the interactions of leverage with mark-to-market accounting. The latter will include an alternative proposal for impact-based accounting. If time permits, I will also present some preliminary results on market ecologies in the Taiwan Stock market.