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Instability and Information

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  • Felix Patzelt

Abstract

Many complex systems exhibit extreme events far more often than expected for a normal distribution. This work examines how self-similar bursts of activity across several orders of magnitude can emerge from first principles in systems that adapt to information. Surprising connections are found between two apparently unrelated research topics: hand-eye coordination in balancing tasks and speculative trading in financial markets. Seemingly paradoxically, locally minimising fluctuations can increase a dynamical system's sensitivity to unpredictable perturbations and thereby facilitate global catastrophes. This general principle is studied in several domain-specific models and in behavioural experiments. It explains many findings in both fields and resolves an apparent antinomy: the coexistence of stabilising control or market efficiency and perpetual instabilities resembling critical phenomena in physical systems.

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  • Felix Patzelt, 2015. "Instability and Information," Papers 1511.03732, arXiv.org.
  • Handle: RePEc:arx:papers:1511.03732
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    File URL: http://arxiv.org/pdf/1511.03732
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