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A Creepy World

Author

Listed:
  • Didier Sornette

    (Swiss Finance Institute and ETH Zürich)

  • Peter Cauwels

    (ETH Zurich; Director Quaerens CommV)

Abstract

Using the mechanics of creep in material sciences as a metaphor, we present a general framework to understand the evolution of financial, economic and social systems and to construct scenarios for the future. In a nutshell, highly non-linear out-of-equilibrium systems subjected to exogenous perturbations tend to exhibit a long phase of slow apparent stable evolution, which are nothing but slow maturations towards instabilities, failures and changes of regimes. With examples from history where a small event had a cataclysmic consequence, we propose a novel view of the current state of the world via the logical scenarios that derive, avoiding the traps of an illusionary stability and simple linear extrapolation. The endogenous scenarios are "muddling along", "managing through" and "blood red abyss". The exogenous scenarios are "painful adjustment" and "golden east".

Suggested Citation

  • Didier Sornette & Peter Cauwels, 2013. "A Creepy World," Swiss Finance Institute Research Paper Series 13-55, Swiss Finance Institute, revised Feb 2014.
    • Handle: RePEc:chf:rpseri:rp1355
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    File URL: http://ssrn.com/abstract=2388739
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    More about this item

    Keywords

    systemic crisis; change of regime; financial bubble; bifurcation; instability; precursors; prediction; scenarios;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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