Speaker
Description
Econophysics uses tools from physics, such as self-organized criticality, to explain economic fluctuations through agent interactions rather than assumptions of perfect rationality. This framework supports physics lecturers in teaching students by contrasting the Bak-Chen-Scheinkman-Woodford self-organized criticality model with Real Business Cycle (RBC) theory, using the rationality debate as a central pedagogical lens.
Real Business Cycle theory explains economic cycles through external shocks acting on fully rational agents, producing near-Gaussian outcomes due to the law of large numbers. However, it struggles to capture empirical features such as fat tails and volatility clustering observed in real-world data.
In contrast, the Bak-Chen-Scheinkman-Woodford model represents firms on an $L \times L$ lattice. Random demand shocks trigger paired production and inventory cascades, analogous to two-dimensional sandpile dynamics. When a local threshold is exceeded,
the system undergoes a toppling process where excess activity is redistributed to neighboring sites. This generates cascade effects (avalanches) characterized by power-law distributions and fat-tailed (Pareto-like) output fluctuations, even in the absence of external shocks.
| Apply for student award at which level: | MSc |
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| Consent on use of personal information: Abstract Submission | Yes, I ACCEPT |