Complexity Research and Economic Growth Sorin Solomon Racah Institute of Physics HUJ Israel Complex Multi-Agent Systems Division, ISI Turin Lagrange Interdisciplinary Lab for Excellence In Complexity

More Is Different Sorin Solomon HUJ and ISI Real world is controlled … –by the exceptional, not the mean; –by the catastrophe, not the steady drip; –by the very rich, not the ‘middle class’. we need to free ourselves from ‘average’ thinking. Philip Anderson

95 0 C 1Kg 1cm 97 1cm 1Kg 99 1Kg 101 The breaking of macroscopic linear extrapolation ? Extrapolation? BOILING PHASE TRANSITION More is different: a single molecule does not boil at 100C 0 Simplest Example of a “More is Different” Transition

Example of “MORE IS DIFFERENT” transition in Finance: Instead of Water Level: -economic Index (Dow-Jones etc…) The crashes are the result of many traders interactions. MORE is DIFFERENT: A market with a single trader would never have crashes

Instead of temperature (energy / matter): Exchange rate/ interest rate Value At Risk / liquid funds Equity Price / Dividends Equity Price / fundamental value Taxation (without representation)/ Tea

Reality curves DVD VCR CARS in USA Product Propagation Bass extrapolation formula vs microscopic representation Actual sales Extrapolation

Stock market shock explained Physicists model recent trading frenzy. Market 'spikes' are seen by traders as freak events. Physicists expect them Lev Muchnik Phys. Scripta

Stock market shock explained Physicists model recent trading frenzy. Market 'spikes' are seen by traders as freak events. Physicists expect them Small changes in product quality, price, external conditions can produce large effects (e.g. large market fluctuations) Small deterioration in credit market can trigger large waves of bankruptcies

“ Levy, Solomon and Levy's Microscopic Simulation of Financial Markets points us towards the future of financial economics. If we restrict ourselves to models which can be solved analytically, we will be modeling for our mutual entertainment, not to maximize explanatory or predictive power." --HARRY M. MARKOWITZ, Nobel Laureate in Economics

Executive Abstract: The Multi-Agent Complex Systems approach identifies -singular local elements of change / growth (even at early stages where, as whole, the system seems in regress) -spatio-temporal patterns of growth relevant resources - socio-economic / human interactive causal mechanisms leading to growth (e.g. education / cultural level / tradition). Concrete interdisciplinary example: post-liberalization Poland - identifies emergence of resilient, sustainable, developing patterns likely to support sustainable global growth - prediction of (space-time) singular fluctuation patterns that may lead to increased social inequality and economic instability (but also to novelty emergence) The classical paradigms fail in predicting emergence of novelty / development in bio/ cogni / socio/ econo systems - Extension of study to other regions / disciplines

“Almost all the social phenomena … obey the logistic growth” Elliot W Montroll I would urge… logistic equation early in the education … in the everyday world of politics and economics Lord Robert May - Nonlinear Terms (Competion/Saturation) Growth ~  Size “continuum” Logistic Solution: uniform in space and time:  < 0 Size  TIME

In reality, in Growth ~  Size,   is the result of multi-agent spatio-temporal distributed discrete contributions This leads to a complex solution presenting fractal / intermittent collective macro-objects with self-organized adaptive behavior Theorem: resilience and sustainability even for <0 Logistic Differential Equation  < 0 Logistic Multi-Agent Prediction     TIME Size

EXAMPLE of Theoretical Applied Science APPLICATION: Liberalization Experiment Poland Economy after MICRO growth ___________________ => MACRO growth 1990 MACRO decay (90) 1992 MACRO growth (92) 1991 MICRO growth (91) GNP THEOREM (Statistical Mechanics Mathematics) Global analysis prediction Complexity prediction Education 88 MACRO decay Maps by the group of Social Psychologist Andrzej Nowak (Warsaw U.)

Economic Growth is in turn “A’s” for Political Transformation Voting for Reformist Parties Nowak

fractal space distribution Prediction of campaign success (15/17) Goldenberg Air-view of a sub-urban neighborhood; crosses on the roofs indicate air-conditioner purchase

Desertification / Reclaim space-time localized patterns Mediterranean; uniform 500mm Semi-arid; patchy Desert;uniform 200mm Lavee+Sarah

Globalization (efficient but unstable fluctuations) Local Consumption Economy (inefficient but very stable (if population is stable)) Theorem: Logistic Multi-Agent Systems=>Intermittent Fluctuations

-emergence of High-Tech communities -start-ups connections to previous businesses -entrepreneurs emerging from old businesses -partners having previous common institutions

Piemonte Belarus Piemonte Romania Future and on-going studies

Conclusions The connections between the main ubiquitous complexity features Pareto-Zipf scaling laws / Levy-stable fat-tail fluctuations, Fractal-Intermittent singular spatio-temporal Growth patterns, Logistic Malthus-Verhulst-Lotka-Volterra-Eigen-Schuster system Percolation, phase transitions, Emergence of adaptive objects can be understood and expressed within a comprehensive coherent interdisciplinary research framework. Its applicability in monitoring and inducing novelty emergence, social change, stable economic growth and sustainable development has been demonstrated.