Econophysics

Papers by me

All papers are in reverse chronological order (i.e. most recent first)...

Paolo Laureti, Peter Ruch, Joseph Wakeling and Yi-Cheng Zhang (2004), The Interactive Minority Game: a Web-based investigation of human market interactions. Physica A 331, 651–659.

Physica A 331 (2004), 651–659    nlin.AO/0309033

This paper describes a psychology/economics experiment examining human decision-making in financial market-type situations. By using a Web-based interface we allow humans to interact with a simple economic game (the Minority Game), and we study how they make use of information contained in the market history. The game itself can be found at http://www.unifr.ch/econophysics/minority/game/. An article on the work appeared in Technology Research News Magazine (5 November 2003), and it was mentioned in Mark Buchanan’s New Scientist article ‘It’s the economy, stupid’ (10 April, pp. 35–37).

Peter Ruch, Joseph Wakeling and Yi-Cheng Zhang (2002), The Interactive Minority Game: Instructions for Experts. arXiv.org preprint cond-mat/0208310.

cond-mat/0208310

This is a working paper we put out in the early days of the Interactive Minority Game, a Web-based interactive market game, to describe what we were doing for the econophysics community. The description of the game setup and technical details is now out of date as we changed a number of aspects of the game before concluding our research; our Physica A paper describes the game setup and results as they now stand.

Joseph Wakeling and Per Bak (2001), Intelligent systems in the context of surrounding environment. Phys. Rev. E 64, 051920.

Phys. Rev. E 64 (2001), 051920    wakeling_bak_2001.pdf (93kB)    ~.ps.gz (88kB)

This fun and rather philosophical paper discusses the need to take into account the surrounding environment when investigating intelligence, and demonstrates this through having a population biologically motivated neural networks compete in a simple economic game. A lot of people seemed to think this was rather an important paper (and others were rather annoyed by it!). Articles on this work were published in Physics News Update 563 (31 October 2001), New Scientist (17 November 2001), wired.com (26 November 2001) and Technology Research News Magazine (5 December 2001), and it was selected as the Econophysics Forum Paper of the Month (February 2002).

Papers by others

These are papers by other authors which I find of particular interest. For obvious copyright reasons they can’t be downloaded from here; links are provided to the relevant journals and/or preprints. As before they’re in reverse chronological order. N.B. — journals may require registration and/or subscription to view the full text of articles.

Hassan Masum and Yi-Cheng Zhang (2004), Manifesto for the Reputation Society. First Monday 9, issue 7.

First Monday 9, issue 7.

Damien Challet, M. Marsili and Gabriele Ottino (2004), Shedding light on El Farol. Physica A 332, 469–482.

Physica A 332 (2004), 469–482    cond-mat/0306445

This paper proposes a mathematically tractable formulation for Brian Arthur’s ‘El Farol’ problem (see below). One of the most interesting results to emerge is that in fact there is an optimal complexity to agents’ strategies.

James Feigenbaum (2003), Financial physics. Rep. Prog. Phys. 66, 1611–1649.

Rep. Prog. Phys. 66 (2003), 1611–1649

A review paper of the field of econophysics. The author is from the economics rather than the physics community and therefore makes some interesting comments which are unlikely to be found elsewhere in the econophysics literature.

Mogens H. Jensen, Anders Johansen and Ingve Simonsen (2003), Inverse statistics in economics: the gain-loss asymmetry. Physica A 324, 338–343.

Physica A 324 (2003), 338–343    cond-mat/0211039

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Steve Keen (2003), Standing on the toes of pygmies: Why econophysics must be careful of the economic foundations on which it builds. Physica A 324, 108–116.

Physica A 324 (2003), 108–116

Steve Keen is the author of Debunking Economics, a book which ruthlessly takes apart modern ‘neoclassical’ economic theory. This paper focuses on the flaws in several fundamental concepts from this theory, including utility maximization and perfect competition.

Matteo Marsili (2003), Scale invariance and criticality in financial markets. Physica A 324, 17–24.

Physica A 324 (2003), 17–24

This paper examines from a theoretical and empirical point of view whether markets are in a critical state.

Paolo Laureti, Frantisek Slanina, Yi-Kuo Yu and Yi-Cheng Zhang (2002), Buyer feedback as a filtering mechanism for reputable sellers. Physica A 316, 413–429.

Physica A 316 (2002), 413–429

A fun examination of internet auction sites, looking at how the feedback systems on such sites as Ebay facilitate honesty among buyers and sellers.

H. E. Stanley, L. A. N. Amaral, P. Gopikrishnan, V. Plerou and M. A. Salinger (2002), Scale invariance and universality in economic phenomena. J. Phys.: Condens. Matter 14, 2121–2131.

J. Phys.: Condens. Matter 14 (2002), 2121–2131

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Sergei Maslov and Yi-Cheng Zhang (2001), Extracting Hidden Information from Knowledge Networks. Phys. Rev. Lett. 87, 248701.

Phys. Rev. Lett. 87 (2001), 248701    cond-mat/0104121

This paper addresses the question of how to predict individual consumers’ preferences based on knowledge of their past purchases and opinions and those of their fellows.

Per Bak, Simon F. Nørrelykke and Martin Shubik (2001), Money and Goldstone modes. Quant. Finance 1, 186–190.

Quant. Finance 1 (2001), 186–190

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P. Jefferies, M. L. Hart, P. M. Hui and N. F. Johnson (2001), From market games to real-world markets. Eur. Phys. J. B 20 (2001) 493–501.

Eur. Phys. J. B 20 (2001), 493–501    cond-mat/0008387

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Kai Nagel, Martin Shubik, Maya Paczuski and Per Bak (2000), Spatial competition and price formation. Physica A 287, 546–562.

Physica A 287 (2000), 546–562

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H. E. Stanley, P. Gopikrishnan, V. Plerou and L. A. N. Amaral (2000), Quantifying fluctuations in economic systems by adapting methods of statistical physics. Physica A 287, 339–361.

Physica A 287 (2000), 339–361

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Sorin Solomon, Gerard Weisbuch, Lucilla de Arcangelis, Naeem Jan and Dietrich Stauffer (2000), Social percolation models. Physica A 277, 239–247.

Physica A 277 (2000), 239–247

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Damien Challet, Matteo Marsili and Yi-Cheng Zhang (2000), Modeling market mechanism with minority game. Physica A 276, 284–315.

Physica A 276 (2000), 284–315    arXiv.org preprint cond-mat/9909265

This paper uses the Minority Game to examine a wide variety of different market situations.

Thomas Lux and Michele Marchesi (1999), Scaling and criticality in a stochastic multi-agent model of a financial market. Nature 397, 498–500.

Nature 397 (1999), 498–500

Conventional economic thinking suggests that ‘stylized facts’ — the characteristics of price fluctuations — must already be present in the information injected into the market. This paper shows that on the contrary these fluctuations arise naturally from the interaction of diverse investors even when the injected information is purely random.

Per Bak, Simon F. Nørrelykke and Martin Shubik (1999), Dynamics of money. Phys. Rev. E 60, 2528–2532.

Phys. Rev. E 60 (1999), 2528–2532

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J. Doyne Farmer (1998/2002), Market force, ecology and evolution. Santa Fe Institute Working Paper 98-12-117 / Ind. Corp. Change 11, 895–953.

Ind. Corp. Change 11 (2002), 895–953    SFI Working Paper 98-12-117

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P. Bak, M. Paczuski and M. Shubik (1997), Price variations in a stock market with many agents. Physica A 246, 430–453.

Physica A 246 (1997), 430–453    cond-mat/9609144

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Damien Challet and Yi-Cheng Zhang (1997), Emergence of cooperation and organization in an evolutionary game. Physica A 246, 407–418.

Physica A 246 (1997), 407–418    adap-org/9708006

This is the paper that introduced the Minority Game (MG), one of the paradigms of the econophysics field. Intended as a simplistic picture of financial markets, this game proves to have a rich dynamics with diverse applications to economic situations; over 100 papers have since been written on this subject. Like Arthur’s El Farol model, the MG addresses the question of reaching equilibrium by using simple strategies and inductive learning — while in addition allowing a more concrete basis than El Farol for examining market fluctuations.

Moshe Levy, Haim Levy and Sorin Solomon (1995), Microscopic Simulation of the Stock Market: the Effect of Microscopic Diversity. J. Phys. I France 5, 1087–1107.

J. Phys. I France 5 (1995), 1087–1107

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W. Brian Arthur (1994), Inductive Reasoning and Bounded Rationality. Am. Econ. Rev. 84, 406–411.

Am. Econ. Rev. 84 (1994), 406–411    arthur/.../El_Farol.pdf

The ‘El Farol’ model introduced in this paper is one of the classic models of non-traditional economics, and inspired the later Minority Game introduced by Challet and Zhang in 1997. Its importance lies in being one of the first papers to show that the question of how to reach equilibrium in markets — something that classical economic theory provides very little insight into — results naturally from agents having diverse simple strategies, and does not require the complete information or ‘perfect rationality’ neoclassical economics assumes. See also the later paper by Challet, Marsili and Ottino, which translates El Farol into a mathematically soluble formalism.

Frank Hahn (1991), The Next Hundred Years. Econ. J. 101, 47–50.

Econ. J. 101 (1991), 47–50

An interesting paper discussing possible future directions for economic theory and practise, and drawing into question the ‘pure theory’ approach that has characterised much economic research.

Journals

For details of interesting and relevant journals, see the links page.