— Volume VI No. 1: January 2010 —

Comments and Discussion:

“Cause-and-Effect or Fooled by Randomness? ”


	Sheri Markose September 21, 2010 11:21
	I'm one of the (very) few economists who has given an empirical mapping of network interconnections of the main US banks for their Credit Default Swap (CDS) obligations to one another (Markose et al 2010). The CDS obligations on mortgage backed securites stand implicated in the recent financial crisis. Likewise, we have tried to generate a power law distribution for wealth in an artificial stock market along the lines of replacing investors who fail to fulfil the average wealth in the market at each relevant period (time step) of the simulation exercise. The need to perform to a benchmark or retain market share is attributed by us to the so called Red Queen dynamic of competing agents relevant to an evolutionary framework. This not well understood in the traditional economic models or by econo-physics where competitive co-evolution is missing. While the famous Bak experiment and the Newman model of replacing sticks when random thresholds apply - may suggest the whole process is random, the behaviour of those involved in competitive co-evolution may also produce the same power-law outcomes. Often in interacting agents with uber intelligence, innovations or surprise outputs emerge in a highly contextual way that are far from random and may drive the process to super criticality (Markose,2005,2004). Nevertheless, the need to study network connectivity in economic and financial systems and the policy implications of Prof Lewis's paper is something I fully endorse. References: Sheri Markose, Simone Giansante, Mateusz Gatkowski and Ali Rais Shaghaghi (2010), "Too Interconnected To Fail: Financial Contagion and Systemic Risk in Network Model of CDS and Other Credit Enhancement Obligations of US Banks", Economics Department Working Paper 683, University of Essex. -Markose, S.M, 2005 , "Computability and Evolutionary Complexity : Markets as Complex Adaptive Systems (CAS)", Economic Journal ,vol. 115, pp.F159-F192. ISSN 0013-0133 -Markose, S. M, Edward T., Serafin M. (2005), "The Red Queen Principle and the Emergence of Efficient Financial Markets: An Agent Based Approach", In: Thomas Lux, Stefan Reitz and Eleni Samanodou (Eds.) Nonlinear Dynamics and Heterogeneous Interacting Agents, Lecture Notes in Economics and Mathematical Systems 550, Springer, Berlin, Heidelberg. - Markose, S.M, 2004, "Novelty in Complex Adaptive Systems (CAS): A Computational Theory of Actor Innovation", Physica A: Statistical Mechanics and Its Applications, vol. 344, pp. 41- 49.

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