self-organized criticality

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Sandpiles and Crashes: How Systems Tune Themselves to the Brink Sandpiles and Crashes: How Systems Tune Themselves to the Brink
11 min read Keywords:  self-organized criticality, sandpile model, Per Bak, power laws, avalanches, Bouchaud, efficiency, fat tails, crashes

The last essay left a loose end. Markets sit at a critical edge where small shocks cascade, but critical points are finely tuned, so who keeps a market balanced there? The answer, found in a pile of sand, is that nobody does. Some systems walk to the brink on their own, and that is where their crashes come from.

Crashes Without a Cause: Markets as Phase Transitions Crashes Without a Cause: Markets as Phase Transitions
20 min read Keywords:  phase transitions, Ising model, herding, discrete choice, self-organized criticality, Bouchaud, crashes, fat tails, excess volatility

Big market moves often show up with no news to explain them. A hundred-year-old model of magnets shows why. When people copy each other strongly enough, a market can hold two moods at once, and the smallest nudge tips it from one to the other. We build the model from scratch, with pictures, then turn it on markets.