arXiv subjects

D. Sornette

Publications and source records attributed to D. Sornette.

At least 37 records · Page 2Linked to original sources

arXiv2015

Preference reversal in quantum decision theory

We consider the psychological effect of preference reversal and show that it finds a natural explanation in the frame of quantum decision theory. When people choose between lotteries with non-negative payoffs, they prefer a more certain lottery because of uncertainty aversion. But when people evaluate lottery prices, e.g. for selling to others the right to play them, they do this more rationally, being less subject to behavioral biases. This difference can be explained by the presence of the attraction factors entering the expression of quantum probabilities. Only the existence of attraction factors can explain why, considering two lotteries with close utility factors, a decision maker prefers one of them when choosing, but evaluates higher the other one when pricing. We derive a general quantitative criterion for the preference reversal to occur that relates the utilities of the two lotteries to the attraction factors under choosing versus pricing and test successfully its application on experiments by Tversky et al. We also show that the planning paradox can be treated as a kind of preference reversal.

physics.soc-ph↗

arXiv2015

Dynamical system theory of periodically collapsing bubbles

We propose a reduced form set of two coupled continuous time equations linking the price of a representative asset and the price of a bond, the later quantifying the cost of borrowing. The feedbacks between asset prices and bonds are mediated by the dependence of their "fundamental values" on past asset prices and bond themselves. The obtained nonlinear self-referencing price dynamics can induce, in a completely objective deterministic way, the appearance of periodically exploding bubbles ending in crashes. Technically, the periodically explosive bubbles arise due to the proximity of two types of bifurcations as a function of the two key control parameters $b$ and $g$, which represent, respectively, the sensitivity of the fundamental asset price on past asset and bond prices and of the fundamental bond price on past asset prices. One is a Hopf bifurcation, when a stable focus transforms into an unstable focus and a limit cycle appears. The other is a rather unusual bifurcation, when a stable node and a saddle merge together and disappear, while an unstable focus survives and a limit cycle develops. The lines, where the periodic bubbles arise, are analogous to the critical lines of phase transitions in statistical physics. The amplitude of bubbles and waiting times between them respectively diverge with the critical exponents $γ= 1$ and $ν= 1/2$, as the critical lines are approached.

q-fin.GN↗

arXiv2015

A civil super-Manhattan project in nuclear research for a safer and prosperous world

Humankind is confronted with a "nuclear stewardship curse", facing the prospect of needing to manage nuclear products over long time scales in the face of the short-time scales of human polities. I propose a super Manhattan-type effort to rejuvenate the nuclear energy industry to overcome the current dead-end in which it finds itself, and by force, humankind has trapped itself in. A 1% GDP investment over a decade in the main nuclear countries could boost economic growth with a focus on the real world, epitomised by nuclear physics/chemistry/engineering/economics with well defined targets. By investing vigorously to obtain scientific and technological breakthroughs, we can create the spring of a world economic rebound based on new ways of exploiting nuclear energy, both more safely and more durably.

physics.soc-ph↗

arXiv2015

Quantum theory of measurements as quantum decision theory

Theory of quantum measurements is often classified as decision theory. An event in decision theory corresponds to the measurement of an observable. This analogy looks clear for operationally testable simple events. However, the situation is essentially more complicated in the case of composite events. The most difficult point is the relation between decisions under uncertainty and measurements under uncertainty. We suggest a unified language for describing the processes of quantum decision making and quantum measurements. The notion of quantum measurements under uncertainty is introduced. We show that the correct mathematical foundation for the theory of measurements under uncertainty, as well as for quantum decision theory dealing with uncertain events, requires the use of positive operator-valued measure that is a generalization of projection-valued measure. The latter is appropriate for operationally testable events, while the former is necessary for characterizing operationally uncertain events. In both decision making and quantum measurements, one has to distinguish composite non-entangled events from composite entangled events. Quantum probability can be essentially different from classical probability only for entangled events. The necessary condition for the appearance of an interference term in the quantum probability is the occurrence of entangled prospects and the existence of an entangled strategic state of a decision maker or of an entangled statistical state of a measuring device.

quant-ph↗

arXiv2015

Condensation of earthquake location distributions: Optimal spatial information encoding and application to multifractal analysis of South Californian seismicity

We present the "condensation" method that exploits the heterogeneity of the probability distribution functions (PDF) of event locations to improve the spatial information content of seismic catalogs. The method reduces the size of seismic catalogs while improving the access to the spatial information content of seismic catalogs. The PDFs of events are first ranked by decreasing location errors and then successively condensed onto better located and lower variance event PDFs. The obtained condensed catalog attributes different weights to each event, providing an optimal spatial representation with respect to the spatially varying location capability of the seismic network. Synthetic tests on fractal distributions perturbed with realistic location errors show that condensation improves spatial information content of the original catalog. Applied to Southern California seismicity, the new condensed catalog highlights major mapped fault traces and reveals possible additional structures while reducing the catalog length by ~25%. The condensation method allows us to account for location error information within a point based spatial analysis. We demonstrate this by comparing the multifractal properties of the condensed catalog locations with those of the original catalog. We evidence different spatial scaling regimes characterized by distinct multifractal spectra and separated by transition scales. We interpret the upper scale as to agree with the thickness of the brittle crust, while the lower scale (2.5km) might depend on the relocation procedure. Accounting for these new results, the Epidemic Type Aftershock Model formulation suggests that, contrary to previous studies, large earthquakes dominate the earthquake triggering process. This implies that the limited capability of detecting small magnitude events cannot be used to argue that earthquakes are unpredictable in general.

physics.geo-ph↗

arXiv2015

Positive operator-valued measures in quantum decision theory

We show that the correct mathematical foundation of quantum decision theory, dealing with uncertain events, requires the use of positive operator-valued measure that is a generalization of the projection-valued measure. The latter is appropriate for operationally testable events, while the former is necessary for characterizing operationally uncertain events. In decision making, one has to distinguish composite non-entangled events from composite entangled events. The mathematical definition of entangled prospects is based on the theory of Hilbert-Schmidt spaces and is analogous to the definition of entangled statistical operators in quantum information theory. We demonstrate that the necessary condition for the appearance of an interference term in the quantum probability is the occurrence of entangled prospects and the existence of an entangled strategic state of a decision maker. The origin of uncertainties in standard lotteries is explained.

quant-ph↗

arXiv2014

Manipulating decision making of typical agents

We investigate how the choice of decision makers can be varied under the presence of risk and uncertainty. Our analysis is based on the approach we have previously applied to individual decision makers, which we now generalize to the case of decision makers that are members of a society. The approach employs the mathematical techniques that are common in quantum theory, justifying our naming as Quantum Decision Theory. However, we do not assume that decision makers are quantum objects. The techniques of quantum theory are needed only for defining the prospect probabilities taking into account such hidden variables as behavioral biases and other subconscious feelings. The approach describes an agent's choice as a probabilistic event occurring with a probability that is the sum of a utility factor and of an attraction factor. The attraction factor embodies subjective and unconscious dimensions in the mind of the decision maker. We show that the typical aggregate amplitude of the attraction factor is $1/4$, and it can be either positive or negative depending on the relative attraction of the competing choices. The most efficient way of varying the decision makers choice is realized by influencing the attraction factor. This can be done in two ways. One method is to arrange in a special manner the payoff weights, which induces the required changes of the values of attraction factors. We show that a slight variation of the payoff weights can invert the sign of the attraction factors and reverse the decision preferences, even when the prospect utilities remain unchanged. The second method of influencing the decision makers choice is by providing information to decision makers. The methods of influencing decision making are illustrated by several experiments, whose outcomes are compared quantitatively with the predictions of our approach.

physics.soc-ph↗

arXiv2014

Self-organization in complex systems as decision making

The idea is advanced that self-organization in complex systems can be treated as decision making (as it is performed by humans) and, vice versa, decision making is nothing but a kind of self-organization in the decision maker nervous systems. A mathematical formulation is suggested based on the definition of probabilities of system states, whose particular cases characterize the probabilities of structures, patterns, scenarios, or prospects. In this general framework, it is shown that the mathematical structures of self-organization and of decision making are identical. This makes it clear how self-organization can be seen as an endogenous decision making process and, reciprocally, decision making occurs via an endogenous self-organization. The approach is illustrated by phase transitions in large statistical systems, crossovers in small statistical systems, evolutions and revolutions in social and biological systems, structural self-organization in dynamical systems, and by the probabilistic formulation of classical and behavioral decision theories. In all these cases, self-organization is described as the process of evaluating the probabilities of macroscopic states or prospects in the search for a state with the largest probability. The general way of deriving the probability measure for classical systems is the principle of minimal information, that is, the conditional entropy maximization under given constraints. Behavioral biases of decision makers can be characterized in the same way as analogous to quantum fluctuations in natural systems.

nlin.AO↗

arXiv2014

New Approach to Modeling Symbiosis in Biological and Social Systems

We suggest a novel approach to treating symbiotic relations between biological species or social entities. The main idea is the characterisation of symbiotic relations of coexisting species through their mutual influence on their respective carrying capacities, taking into account that this influence can be quite strong and requires a nonlinear functional framework. We distinguish three variants of mutual influence, representing the main types of relations between species: (i) passive symbiosis, when the mutual carrying capacities are influenced by other species without their direct interactions; (ii) active symbiosis, when the carrying capacities are transformed by interacting species; and (iii) mixed symbiosis, when the carrying capacity of one species is influenced by direct interactions, while that of the other species is not. The approach allows us to describe all kinds of symbiosis, mutualism, commensalism, and parasitism within a unified scheme. The case of two symbiotic species is analysed in detail, demonstrating several dynamical regimes of coexistence, unbounded growth of both populations, growth of one and elimination of the other population, convergence to evolutionary stable states, and everlasting population oscillations. The change of the dynamical regimes occurs by varying the system parameters characterising the destruction or creation of the mutual carrying capacities. The regime changes are associated with several dynamical system bifurcations.

q-bio.PE↗

arXiv2014

How brains make decisions

This chapter, dedicated to the memory of Mino Freund, summarizes the Quantum Decision Theory (QDT) that we have developed in a series of publications since 2008. We formulate a general mathematical scheme of how decisions are taken, using the point of view of psychological and cognitive sciences, without touching physiological aspects. The basic principles of how intelligence acts are discussed. The human brain processes involved in decisions are argued to be principally different from straightforward computer operations. The difference lies in the conscious-subconscious duality of the decision making process and the role of emotions that compete with utility optimization. The most general approach for characterizing the process of decision making, taking into account the conscious-subconscious duality, uses the framework of functional analysis in Hilbert spaces, similarly to that used in the quantum theory of measurements. This does not imply that the brain is a quantum system, but just allows for the simplest and most general extension of classical decision theory. The resulting theory of quantum decision making, based on the rules of quantum measurements, solves all paradoxes of classical decision making, allowing for quantitative predictions that are in excellent agreement with experiments. Finally, we provide a novel application by comparing the predictions of QDT with experiments on the prisoner dilemma game. The developed theory can serve as a guide for creating artificial intelligence acting by quantum rules.

physics.bio-ph↗

arXiv2014

Quantum probabilities and entanglement for multimode quantum systems

Quantum probabilities are defined for several important physical cases characterizing measurements with multimode quantum systems. These are the probabilities for operationally testable measurements, for operationally uncertain measurements, and for entangled composite events. The role of the prospect and state entanglement is emphasized. Numerical modeling is presented for a two-mode Bose-condensed system of trapped atoms. The interference factor is calculated by invoking the channel-state duality.

quant-ph↗

arXiv2014

Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based models

This short review presents a selected history of the mutual fertilization between physics and economics, from Isaac Newton and Adam Smith to the present. The fundamentally different perspectives embraced in theories developed in financial economics compared with physics are dissected with the examples of the volatility smile and of the excess volatility puzzle. The role of the Ising model of phase transitions to model social and financial systems is reviewed, with the concepts of random utilities and the logit model as the analog of the Boltzmann factor in statistic physics. Recent extensions in term of quantum decision theory are also covered. A wealth of models are discussed briefly that build on the Ising model and generalize it to account for the many stylized facts of financial markets. A summary of the relevance of the Ising model and its extensions is provided to account for financial bubbles and crashes. The review would be incomplete if it would not cover the dynamical field of agent based models (ABMs), also known as computational economic models, of which the Ising-type models are just special ABM implementations. We formulate the ``Emerging Market Intelligence hypothesis'' to reconcile the pervasive presence of ``noise traders'' with the near efficiency of financial markets. Finally, we note that evolutionary biology, more than physics, is now playing a growing role to inspire models of financial markets.

q-fin.GN↗

arXiv2014

Super-exponential endogenous bubbles in an equilibrium model of rational and noise traders

We introduce a model of super-exponential financial bubbles with two assets (risky and risk-free), in which rational investors and noise traders co-exist. Rational investors form expectations on the return and risk of a risky asset and maximize their constant relative risk aversion expected utility with respect to their allocation on the risky asset versus the risk-free asset. Noise traders are subjected to social imitation and follow momentum trading. Allowing for random time-varying herding propensity, we are able to reproduce several well-known stylized facts of financial markets such as a fat-tail distribution of returns and volatility clustering. In particular, we observe transient faster-than-exponential bubble growth with approximate log-periodic behavior and give analytical arguments why this follows from our framework. The model accounts well for the behavior of traders and for the price dynamics that developed during the dotcom bubble in 1995-2000. Momentum strategies are shown to be transiently profitable, supporting these strategies as enhancing herding behavior.

q-fin.ST↗

arXiv2014

Population dynamics with nonlinear delayed carrying capacity

We consider a class of evolution equations describing population dynamics in the presence of a carrying capacity depending on the population with delay. In an earlier work, we presented an exhaustive classification of the logistic equation where the carrying capacity is linearly dependent on the population with a time delay, which we refer to as the "linear delayed carrying capacity" model. Here, we generalize it to the case of a nonlinear delayed carrying capacity. The nonlinear functional form of the carrying capacity characterizes the delayed feedback of the evolving population on the capacity of their surrounding by either creating additional means for survival or destroying the available resources. The previously studied linear approximation for the capacity assumed weak feedback, while the nonlinear form is applicable to arbitrarily strong feedback. The nonlinearity essentially changes the behavior of solutions to the evolution equation, as compared to the linear case. All admissible dynamical regimes are analyzed, which can be of the following types: punctuated unbounded growth, punctuated increase or punctuated degradation to a stationary state, convergence to a stationary state with sharp reversals of plateaus, oscillatory attenuation, everlasting fluctuations, everlasting up-down plateau reversals, and divergence in finite time. The theorem is proved that, for the case characterizing the evolution under gain and competition, solutions are always bounded, if the feedback is destructive. We find that even a small noise level profoundly affects the position of the finite-time singularities. Finally, we demonstrate the feasibility of predicting the critical time of solutions having finite-time singularities from the knowledge of a simple quadratic approximation of the early time dynamics.

q-bio.PE↗

arXiv2014

Utility Rate Equations of Group Population Dynamics in Biological and Social Systems

We present a novel system of equations to describe the evolution of self-organized structured societies (biological or human) composed of several trait groups. The suggested approach is based on the combination of ideas employed in the theory of biological populations, system theory, and utility theory. The evolution equations are defined as utility rate equations, whose parameters are characterized by the utility of each group with respect to the society as a whole and by the mutual utilities of groups with respect to each other. We analyze in detail the cases of two groups (cooperators and defectors) and of three groups (cooperators, defectors, and regulators) and find that, in a self-organized society, neither defectors nor regulators can overpass the maximal fractions of about 10% each. This is in agreement with the data for bee and ant colonies. The classification of societies by their distance from equilibrium is proposed. We apply the formalism to rank the countries according to the introduced metric quantifying their relative stability, which depends on the cost of defectors and regulators as well as their respective population fractions. We find a remarkable concordance with more standard economic ranking based, for instance, on GDP per capita.

physics.soc-ph↗

arXiv2013

Mode interference in quantum joint probabilities for multimode Bose-condensed systems

The method of defining quantum joint probabilities of two events is applied to a multimode system of trapped Bose-condensed atoms. The coherent modes are generated by modulating the trapping potential with an alternating field with a frequency in resonance with a transition frequency between two coherent modes. The system is subjected to nondestructive measurements randomly influencing the phase difference of the modes. The joint probability of observing two events, corresponding to the observation of two states, is calculated by employing the channel-state duality. The interference term in the joint probability can arise when the composite events form an entangled prospect and the system state is also entangled. This interference is due to the uncertainty induced by nondestructive measurements.

cond-mat.quant-gas↗

arXiv2013

Quantum probabilities of composite events in quantum measurements with multimode states

The problem of defining quantum probabilities of composite events is considered. This problem is of high importance for the theory of quantum measurements and for quantum decision theory that is a part of measurement theory. We show that the Luders probability of consecutive measurements is a transition probability between two quantum states and that this probability cannot be treated as a quantum extension of the classical conditional probability. The Wigner distribution is shown to be a weighted transition probability that cannot be accepted as a quantum extension of the classical joint probability. We suggest the definition of quantum joint probabilities by introducing composite events in multichannel measurements. The notion of measurements under uncertainty is defined. We demonstrate that the necessary condition for the mode interference is the entanglement of the composite prospect together with the entanglement of the composite statistical state. As an illustration, we consider an example of a quantum game. A special attention is payed to the application of the approach to systems with multimode states, such as atoms, molecules, quantum dots, or trapped Bose-condensed atoms with several coherent modes.

quant-ph↗

arXiv2013

Conditions for Quantum Interference in Cognitive Sciences

We present a general classification of the conditions under which cognitive science, concerned e.g. with decision making, requires the use of quantum theoretical notions. The analysis is done in the frame of the mathematical approach based on the theory of quantum measurements. We stress that quantum effects in cognition can arise only when decisions are made under uncertainty. Conditions for the appearance of quantum interference in cognitive sciences and the conditions when interference cannot arise are formulated.

physics.soc-ph↗