![]() ![]() Traders, for example, may recall the 2010 Flash Crash, in which new high-frequency algorithmic trading led to a hot-potato volume effect that plunged markets into a momentary tailspin. Additions and alterations to complex systems introduce all sorts of unforeseen complexities. Unintended consequences, Miller notes, are features of interactions and feedback. Other amplifiers, like deregulation, leverage, and the fear of missing out, may add further to the feedback loop. This can lead to even greater demand, higher prices, and market enthusiasm. In stock markets, a rise in price for some asset class may raise investor’s enthusiasm and expectations. Markets may sometimes exhibit positive feedback loops as well. Given a fixed supply, a rise in demand is usually met with higher prices (dampening part of the rise in demand). In commodity markets, for instance, the price system tends to exhibit its own stabilizer. Similarly, as George Akerlof and Robert Shiller write in Animal Spirits, we want to distinguish between negative (self-regulating) and positive (amplifying) feedback. (Advances in human stealth and detection technologies exhibit similar patterns too.) You can imagine, for example, how mutational improvements in the camouflage of moths might affect its fitness, the fitness of its predators, and their evolutionary histories in turn. Miller writes also about the role of feedback effects in the dynamics and evolution of complex systems. Stabilizers, amplifiers, and feedback loops And for the most part, it seems to work reasonably well. Prices adjust to all this hubbub, which in turn helps with the allocation of scarce resources, or so the theory goes. Likewise, in economic systems, there is the invisible hand of the market - aggregating and coordinating the interactions of decentralized buyers and sell. Von Neumann’s cellular automata (Figure 1) and Conway’s game of life show, for example, how simple mathematical rules and interactions can produce complex structures, patterns, and dynamics. Miller himself begins with the hypothesis that “more is different”: that new phenomena can emerge from the aggregation of simple, local interactions. And it is in construction that complexity abounds.” John Miller. … Reduction gives us little insight into construction. “We inhabit a world where even the simplest parts can interact in complex ways, and in so doing create an emerging whole that exhibits behavior seemingly disconnected from its humble origins. We have to incorporate concepts like construction, feedback, and emergence into our mental models. Simple micro interactions, as we know, can lead to complex macro phenomena.Īs John Miller observes in A Crude Look at the Whole, if we seek to understand complex systems in economics, biology, ecology, and so on, reductionism is not enough. A focus on reducible components may not give us a complete understanding of the whole. The mapmaker’s challenge is in knowing what to leave out. We are trying to distil a large, messy picture into something manageable. ![]()
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