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From an efficient market to a viable market: new thinking on reforming the international financial market

2013年9月22日 没有评论

Abstract

The US-made grand financial crisis is a natural experiment. We have witnessed the grand failure of the linear equilibrium theory of the efficient market and the emergence of the non-linear evolutionary theory of the viable market. Four observations reveal where the equilibrium theory of asset pricing and business cycles went wrong: the exchange rate resonance driven by US business cycles, the mesofoundation of macro-fluctuations, the endogenous nature of persistent cycles in financial and macro-indexes, and the trend collapse and higher moment risk in the derivatives market. The new perspective, which is analogous to the theory of nonlinear population dynamics in continuous time, provides a better alternative for understanding complex causes of the grand crisis, including systematic failure in the mortgage security market, unprecedented concentration in financial markets,unfettered speculation in commodity and currency markets, deregulation and liberalisation of financial markets. A new international financial order can be achieved if a robust international antitrust law is developed and applied. and a Tobin tax on foreign exchange transactions can be established through global fforts.American disease of financial power, China puzzle of high savings and China’s constructive role in developing Asian dollar market, Pacific Union, and new international order are discussed. An overhaul of financial theory is needed to develop a viable financial market to support sustainable economies.

From an efficient market to a viable market: new thinking on reforming the international financial market

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Imitation, Learning, and Communication

2012年2月28日 没有评论

Neoclassical models in microeconomics often describe an atomized society, in which every individual makes his or her own decision based on individual independent preference without the communication and interaction with the fellow members within the same community.1 Therefore, static economic theory cannot explain collective behavior and changes of social trends, such as fashion, popular name brand, political middling or polarization.Physicists have been interested in collective phenomena caused by the success of ferromagnetic theory in explaining collective phenomena under thermodynamic equilibrium. The Ising fish model2 and the public opinion model3 represented the early efforts in developing complex dynamic theory of collective behavior. However, the human society is an open system, there is no ground to apply the technique of equilibrium statistical mechanics, especially, the Maxwell-type transition probability, to social behavior. Therefore, these pioneer models have been discussed in physics community, but received little attention among social scientists.However, the development of nonequilibrium thermodynamics and theory of dissipative structure open new way to deal with complex dynamics in chemical systems and biological systems,4,5,6 that have many similarities with the behavior of social systems. In this short article, we will introduce new transition probability into master equation from the consideration of socio-psychological mechanism. The model may shed light on social behavior such as fashion, public choice and political campaign.

IMITATION LEARNING AND COMMUNICATION CENTRAL OR POLARIZED PATTERNS IN COLLECTIVE ACTIONS

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