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D. Sornette

Publications and source records attributed to D. Sornette.

At least 55 records · Page 3Linked to original sources

Super-linear scaling of offsprings at criticality in branching processes

For any branching process, we demonstrate that the typical total number $r_{\rm mp}(ντ)$ of events triggered over all generations within any sufficiently large time window $τ$ exhibits, at criticality, a super-linear dependence $r_{\rm mp}(ντ) \sim (ντ)^γ$ (with $γ>1$) on the total number $ντ$ of the immigrants arriving at the Poisson rate $ν$. In branching processes in which immigrants (or sources) are characterized by fertilities distributed according to an asymptotic power law tail with tail exponent $1 < γ\leqslant 2$, the exponent of the super-linear law for $r_{\rm mp}(ντ)$ is identical to the exponent $γ$ of the distribution of fertilities. For $γ>2$ and for standard branching processes without power law distribution of fertilities, $r_{\rm mp}(ντ) \sim (ντ)^2$. This novel scaling law replaces and tames the divergence $ντ/(1-n)$ of the mean total number ${\bar R}_t(τ)$ of events, as the branching ratio (defined as the average number of triggered events of first generation per source) tends to 1. The derivation uses the formalism of generating probability functions. The corresponding prediction is confirmed by numerical calculations and an heuristic derivation enlightens its underlying mechanism. We also show that ${\bar R}_t(τ)$ is always linear in $ντ$ even at criticality ($n=1$). Our results thus illustrate the fundamental difference between the mean total number, which is controlled by a few extremely rare realizations, and the typical behavior represented by $r_{\rm mp}(ντ)$.

physics.data-an↗

Exploring the limits of safety analysis in complex technological systems

From biotechnology to cyber-risks, most extreme technological risks cannot be reliably estimated from historical statistics. Therefore, engineers resort to predictive methods, such as fault/event trees in the framework of probabilistic safety assessment (PSA), which consists in developing models to identify triggering events, potential accident scenarios, and estimate their severity and frequency. However, even the best safety analysis struggles to account for evolving risks resulting from inter-connected networks and cascade effects. Taking nuclear risks as an example, the predicted plant-specific distribution of losses is found to be significantly underestimated when compared with available empirical records. Using a novel database of 99 events with losses larger than $50'000 constructed by Sovacool, we document a robust power law distribution with tail exponent mu \approx 0.7. A simple cascade model suggests that the classification of the different possible safety regimes is intrinsically unstable in the presence of cascades. Additional continuous development and validation, making the best use of the experienced realized incidents, near misses and accidents, is urgently needed to address the existing known limitations of PSA when aiming at the estimation of total risks.

physics.soc-ph↗

The Illusion of the Perpetual Money Machine

We argue that the present crisis and stalling economy continuing since 2007 are rooted in the delusionary belief in policies based on a "perpetual money machine" type of thinking. We document strong evidence that, since the early 1980s, consumption has been increasingly funded by smaller savings, booming financial profits, wealth extracted from house price appreciation and explosive debt. This is in stark contrast with the productivity-fueled growth that was seen in the 1950s and 1960s. This transition, starting in the early 1980s, was further supported by a climate of deregulation and a massive growth in financial derivatives designed to spread and diversify the risks globally. The result has been a succession of bubbles and crashes, including the worldwide stock market bubble and great crash of October 1987, the savings and loans crisis of the 1980s, the burst in 1991 of the enormous Japanese real estate and stock market bubbles, the emerging markets bubbles and crashes in 1994 and 1997, the LTCM crisis of 1998, the dotcom bubble bursting in 2000, the recent house price bubbles, the financialization bubble via special investment vehicles, the stock market bubble, the commodity and oil bubbles and the debt bubbles, all developing jointly and feeding on each other. Rather than still hoping that real wealth will come out of money creation, we need fundamentally new ways of thinking. In uncertain times, it is essential, more than ever, to think in scenarios: what can happen in the future, and, what would be the effect on your wealth and capital? How can you protect against adverse scenarios? We thus end by examining the question "what can we do?" from the macro level, discussing the fundamental issue of incentives and of constructing and predicting scenarios as well as developing investment insights.

q-fin.GN↗

Fertility Heterogeneity as a Mechanism for Power Law Distributions of Recurrence Times

We study the statistical properties of recurrence times in the self-excited Hawkes conditional Poisson process, the simplest extension of the Poisson process that takes into account how the past events influence the occurrence of future events. Specifically, we analyze the impact of the power law distribution of fertilities with exponent α, where the fertility of an event is the number of aftershocks of first generation that it triggers, on the probability distribution function (pdf) f(τ) of the recurrence times τbetween successive events. The other input of the model is an exponential Omori law quantifying the pdf of waiting times between an event and its first generation aftershocks, whose characteristic time scale is taken as our time unit. At short time scales, we discover two intermediate power law asymptotics, f(τ) ~ τ^{-(2-α)} for τ<< τ_c and f(τ) ~ τ^{-α} for τ_c << τ<< 1, where τ_c is associated with the self-excited cascades of aftershocks. For 1 << τ<< 1/ν, we find a constant plateau f(τ) ~ const, while at long times, 1/ν< τ, f(τ) ~ e^{-ντ} has an exponential tail controlled by the arrival rate νof exogenous events. These results demonstrate a novel mechanism for the generation of power laws in the distribution of recurrence times, which results from a power law distribution of fertilities in the presence of self-excitation and cascades of triggering.

physics.geo-ph↗

Modeling symbiosis by interactions through species carrying capacities

We introduce a mathematical model of symbiosis between different species by taking into account the influence of each species on the carrying capacities of the others. The modeled entities can pertain to biological and ecological societies or to social, economic and financial societies. Our model includes three basic types: symbiosis with direct mutual interactions, symbiosis with asymmetric interactions, and symbiosis without direct interactions. In all cases, we provide a complete classification of all admissible dynamical regimes. The proposed model of symbiosis turned out to be very rich, as it exhibits four qualitatively different regimes: convergence to stationary states, unbounded exponential growth, finite-time singularity, and finite-time death or extinction of species.

physics.bio-ph↗

Statistical Outliers and Dragon-Kings as Bose-Condensed Droplets

A theory of exceptional extreme events, characterized by their abnormal sizes compared with the rest of the distribution, is presented. Such outliers, called "dragon-kings", have been reported in the distribution of financial drawdowns, city-size distributions (e.g., Paris in France and London in the UK), in material failure, epileptic seizure intensities, and other systems. Within our theory, the large outliers are interpreted as droplets of Bose-Einstein condensate: the appearance of outliers is a natural consequence of the occurrence of Bose-Einstein condensation controlled by the relative degree of attraction, or utility, of the largest entities. For large populations, Zipf's law is recovered (except for the dragon-king outliers). The theory thus provides a parsimonious description of the possible coexistence of a power law distribution of event sizes (Zipf's law) and dragon-king outliers.

physics.soc-ph↗

Extreme events in population dynamics with functional carrying capacity

A class of models is introduced describing the evolution of population species whose carrying capacities are functionals of these populations. The functional dependence of the carrying capacities reflects the fact that the correlations between populations can be realized not merely through direct interactions, as in the usual predator-prey Lotka-Volterra model, but also through the influence of species on the carrying capacities of each other. This includes the self-influence of each kind of species on its own carrying capacity with delays. Several examples of such evolution equations with functional carrying capacities are analyzed. The emphasis is given on the conditions under which the solutions to the equations display extreme events, such as finite-time death and finite-time singularity. Any destructive action of populations, whether on their own carrying capacity or on the carrying capacities of co-existing species, can lead to the instability of the whole population that is revealed in the form of the appearance of extreme events, finite-time extinctions or booms followed by crashes.

q-bio.PE↗

Dragon-kings: mechanisms, statistical methods and empirical evidence

This introductory article presents the special Discussion and Debate volume "From black swans to dragon-kings, is there life beyond power laws?" published in Eur. Phys. J. Special Topics in May 2012. We summarize and put in perspective the contributions into three main themes: (i) mechanisms for dragon-kings, (ii) detection of dragon-kings and statistical tests and (iii) empirical evidence in a large variety of natural and social systems. Overall, we are pleased to witness significant advances both in the introduction and clarification of underlying mechanisms and in the development of novel efficient tests that demonstrate clear evidence for the presence of dragon-kings in many systems. However, this positive view should be balanced by the fact that this remains a very delicate and difficult field, if only due to the scarcity of data as well as the extraordinary important implications with respect to hazard assessment, risk control and predictability.

nlin.AO↗

A simple microstructure return model explaining microstructure noise and Epps effects

We present a simple microstructure model of financial returns that combines (i) the well-known ARFIMA process applied to tick-by-tick returns, (ii) the bid-ask bounce effect, (iii) the fat tail structure of the distribution of returns and (iv) the non-Poissonian statistics of inter-trade intervals. This model allows us to explain both qualitatively and quantitatively important stylized facts observed in the statistics of microstructure returns, including the short-ranged correlation of returns, the long-ranged correlations of absolute returns, the microstructure noise and Epps effects. According to the microstructure noise effect, volatility is a decreasing function of the time scale used to estimate it. Paradoxically, the Epps effect states that cross correlations between asset returns are increasing functions of the time scale at which the returns are estimated. The microstructure noise is explained as the result of the negative return correlations inherent in the definition of the bid-ask bounce component (ii). In the presence of a genuine correlation between the returns of two assets, the Epps effect is due to an average statistical overlap of the momentum of the returns of the two assets defined over a finite time scale in the presence of the long memory process (i).

q-fin.TR↗

Time-Bridge Estimators of Integrated Variance

We present a set of log-price integrated variance estimators, equal to the sum of open-high-low-close bridge estimators of spot variances within $n$ subsequent time-step intervals. The main characteristics of some of the introduced estimators is to take into account the information on the occurrence times of the high and low values. The use of the high's and low's of the bridge associated with the original process makes the estimators significantly more efficient that the standard realized variance estimators and its generalizations. Adding the information on the occurrence times of the high and low values improves further the efficiency of the estimators, much above those of the well-known realized variance estimator and those derived from the sum of Garman and Klass spot variance estimators. The exact analytical results are derived for the case where the underlying log-price process is an Itô stochastic process. Our results suggests more efficient ways to record financial prices at intermediate frequencies.

q-fin.ST↗

Robust Statistical Tests of Dragon-Kings beyond Power Law Distributions

We ask the question whether it is possible to diagnose the existence of "Dragon-Kings" (DK), namely anomalous observations compared to a power law background distribution of event sizes. We present two new statistical tests, the U-test and the DK-test, aimed at identifying the existence of even a single anomalous event in the tail of the distribution of just a few tens of observations. The DK-test in particular is derived such that the p-value of its statistic is independent of the exponent characterizing the null hypothesis. We demonstrate how to apply these two tests on the distributions of cities and of agglomerations in a number of countries. We find the following evidence for Dragon-Kings: London in the distribution of city sizes of Great Britain; Moscow and St-Petersburg in the distribution of city sizes in the Russian Federation; and Paris in the distribution of agglomeration sizes in France. True negatives are also reported, for instance the absence of Dragon-Kings in the distribution of cities in Germany.

physics.data-an↗

On the Correct Use of Statistical Tests: Reply to "Lies, damned lies and statistics (in Geology)"

In a Forum published in EOS Transactions AGU (2009) entitled "Lies, damned lies and statistics (in Geology)", Vermeesch (2009) claims that "statistical significant is not the same as geological significant", in other words, statistical tests may be misleading. In complete contradiction, we affirm that statistical tests are always informative. We detail the several mistakes of Vermeesch in his initial paper and in his comments to our reply. The present text is developed in the hope that it can serve as an illuminating pedagogical exercise for students and lecturers to learn more about the subtleties, richness and power of the science of statistics.

physics.data-an↗

Decision Theory with Prospect Interference and Entanglement

We present a novel variant of decision making based on the mathematical theory of separable Hilbert spaces. This mathematical structure captures the effect of superposition of composite prospects, including many incorporated intentions, which allows us to describe a variety of interesting fallacies and anomalies that have been reported to particularize the decision making of real human beings. The theory characterizes entangled decision making, non-commutativity of subsequent decisions, and intention interference. We demonstrate how the violation of the Savage's sure-thing principle, known as the disjunction effect, can be explained quantitatively as a result of the interference of intentions, when making decisions under uncertainty. The disjunction effects, observed in experiments, are accurately predicted using a theorem on interference alternation that we derive, which connects aversion-to-uncertainty to the appearance of negative interference terms suppressing the probability of actions. The conjunction fallacy is also explained by the presence of the interference terms. A series of experiments are analysed and shown to be in excellent agreement with a priori evaluation of interference effects. The conjunction fallacy is also shown to be a sufficient condition for the disjunction effect and novel experiments testing the combined interplay between the two effects are suggested.

math-ph↗

Generating Functions and Stability Study of Multivariate Self-Excited Epidemic Processes

We present a stability study of the class of multivariate self-excited Hawkes point processes, that can model natural and social systems, including earthquakes, epileptic seizures and the dynamics of neuron assemblies, bursts of exchanges in social communities, interactions between Internet bloggers, bank network fragility and cascading of failures, national sovereign default contagion, and so on. We present the general theory of multivariate generating functions to derive the number of events over all generations of various types that are triggered by a mother event of a given type. We obtain the stability domains of various systems, as a function of the topological structure of the mutual excitations across different event types. We find that mutual triggering tends to provide a significant extension of the stability (or subcritical) domain compared with the case where event types are decoupled, that is, when an event of a given type can only trigger events of the same type.

cond-mat.stat-mech↗

Hierarchy of Temporal Responses of Multivariate Self-Excited Epidemic Processes

We present the first exact analysis of some of the temporal properties of multivariate self-excited Hawkes conditional Poisson processes, which constitute powerful representations of a large variety of systems with bursty events, for which past activity triggers future activity. The term "multivariate" refers to the property that events come in different types, with possibly different intra- and inter-triggering abilities. We develop the general formalism of the multivariate generating moment function for the cumulative number of first-generation and of all generation events triggered by a given mother event (the "shock") as a function of the current time $t$. This corresponds to studying the response function of the process. A variety of different systems have been analyzed. In particular, for systems in which triggering between events of different types proceeds through a one-dimension directed or symmetric chain of influence in type space, we report a novel hierarchy of intermediate asymptotic power law decays $\sim 1/t^{1-(m+1)θ}$ of the rate of triggered events as a function of the distance $m$ of the events to the initial shock in the type space, where $0 < θ<1$ for the relevant long-memory processes characterizing many natural and social systems. The richness of the generated time dynamics comes from the cascades of intermediate events of possibly different kinds, unfolding via a kind of inter-breeding genealogy.

cond-mat.stat-mech↗

Zipf's law and maximum sustainable growth

Zipf's law states that the number of firms with size greater than S is inversely proportional to S. Most explanations start with Gibrat's rule of proportional growth but require additional constraints. We show that Gibrat's rule, at all firm levels, yields Zipf's law under a balance condition between the effective growth rate of incumbent firms (which includes their possible demise) and the growth rate of investments in entrant firms. Remarkably, Zipf's law is the signature of the long-term optimal allocation of resources that ensures the maximum sustainable growth rate of an economy.

physics.soc-ph↗

Mathematical Structure of Quantum Decision Theory

One of the most complex systems is the human brain whose formalized functioning is characterized by decision theory. We present a "Quantum Decision Theory" of decision making, based on the mathematical theory of separable Hilbert spaces. This mathematical structure captures the effect of superposition of composite prospects, including many incorporated intentions, which allows us to explain a variety of interesting fallacies and anomalies that have been reported to particularize the decision making of real human beings. The theory describes entangled decision making, non-commutativity of subsequent decisions, and intention interference of composite prospects. We demonstrate how the violation of the Savage's sure-thing principle (disjunction effect) can be explained as a result of the interference of intentions, when making decisions under uncertainty. The conjunction fallacy is also explained by the presence of the interference terms. We demonstrate that all known anomalies and paradoxes, documented in the context of classical decision theory, are reducible to just a few mathematical archetypes, all of which finding straightforward explanations in the frame of the developed quantum approach.

cs.AI↗

Entanglement production in quantum decision making

The quantum decision theory introduced recently is formulated as a quantum theory of measurement. It describes prospect states represented by complex vectors of a Hilbert space over a prospect lattice. The prospect operators, acting in this space, form an involutive bijective algebra. A measure is defined for quantifying the entanglement produced by the action of prospect operators. This measure characterizes the level of complexity of prospects involved in decision making. An explicit expression is found for the maximal entanglement produced by the operators of multimode prospects.

quant-ph↗