Introduction to SOC (Self-Organised Criticality)

Discussion in 'Technical Analysis' started by harrytrader, Jan 24, 2004.

  1. See

    Self-Organized Criticality
    In physics, a critical point is a point at which a system changes radically its behavior or structure, for instance, from solid to liquid. In standard critical phenomena, there is a control parameter which an experimenter can vary to obtain this radical change in behavior. In the case of melting, the control parameter is temperature. Self-organized critical phenomena, by contrast, is exhibited by driven systems which reach a critical state by their intrinsic dynamics, independently of the value of any control parameter. The archetype of a self-organized critical system is a sand pile. Sand is slowly dropped onto a surface, forming a pile. As the pile grows, avalanches occur which carry sand from the top to the bottom of the pile. At least in model systems, the slope of the pile becomes independent of the rate at which the system is driven by dropping sand. This is the (self-organized) critical slope.
  2. This is linked to the reversal of market at extreme theorical zones

  3. SOC (or phase transition) was popularised by Sornette of course but it is indeed a very recent trend in fashionable so called "Econophysics" :D

    Introduction. Econophysics – a new area for statistical physics?

    The word “econophysics” was introduced by H.E.Stanley to describe the large number of papers written by physicists in the last ten years on problem of (stock) market, the growth of companies and and related economic questions(J.P.Bouchaud and M.Potters, 2000; R.N.Mantegna and H.E.Stanley,2000; H.Levy et al.,2000). The first econophysics model published by physicists in physics journals were those published by Mantegna (R.N.Mantegna,1991).

    The econophysicist D.Stauffer compares in one of his papers “econophysics” with the “discovery” of America by Columbus half a millennium ago: Other people came thousands of years earlier from Asia, and the Normans settled for some time in Vinland, now in Northern Newfoundland. But none of them informed about these findings a more widespread medium, while the voyage of Columbus really changed life in both America and Europe. In this sense the econophysicists are like Columbus, not really knowing they are doing but nevertheless doing something important.

  4. What amuses me is that they don't know the cause behind this criticality phenomena (they can only observe and describe it but they don't have any causal model of it, only descriptive or extrapolative model that's why Sornette's model is not really reliable :D) - whereas I know it at least better than them because their model is only stochastics whereas mine is deterministic and deterministic model requires to know the main causal factors :D

  5. Harry I don't see the significance of knowing the cause. If I can adequately describe how the market works using a probabilistic model, why should it be more important to know the prime mover? If, as you suggest, market turning points are coincident with the 'sandpile' cascading until it returns to a critical slope what is to prevent market participants from working to achieve a super-critical state and thus either delaying the onset of a market reversal or creating a much more drastic reversal when it does occur? My thought is that there is indeed an 'invisible hand' at work in the markets...that nobody can know exactly what will happen but that some market participants can understand and act on information in a more focused manner than others, thus allowing profits to accrue to them rather than to the others. These participants don't necessarily need to know the cause of a trend change, they only need to recognize it and follow along.
  6. abogdan



    Have you read "Homeostatic Machine" by William Ross Ashby?

    Its been dissected pretty thoroughly there.
  7. What do you mean by "ADEQUATLY" :D If it was possible to do so there wouldn't be so many researchers around the field :D. At the moment they agree that the market seems to follow a power law, and they are looking for the cause behind this power law see for example J. Doyne Farmer's paper

    <IMG SRC=>

    Don't forget that a probalistic distribution doesn't EXPLAIN ANYTHING by itself, it is just a SUMMARY OF DATAS in CONDENSED FORM, that is to say pure DESCRIPTION of a FORM. Now you can invent any theory to explain the form but if it is not the real cause you won't go very far in application. For example, in thermodynamics, machines were built long before Carnot theorise the entropy concept, but before him one thought that a supposed matter "phlogistic" seems to explain the phenomena well enough because the analogy with matter was appealing but this misconception leads to bad return and ... explosion of machines.

    As for the sand pile, It is not me that says that, it is the so-called econophysicists. Sand Pile is just a reference in physics for criticality study a bit like brownian motion is a reference law for stochastics modelling although everybody knows that it is not brownian and the same thing for the sand pile. In fact the model of the sand pile itself is not so rigorous. It is just an analogy of phenomenas that have some kind of "Universal" behavior.
    Now I would add something that the term self-organised doesn't pinpoint, this analogy is somehow blinding and the expression "self-organised" is as misnamed as the term "chaos theory" (since it the science that studies non-linear dynamics and that not every non linear dynamic systems is in chaotic state). The dynamics of the collapse of the sand is yes due to its internal structure but it is not this structure that causes the collapse it is the weather or a child playing with the sand pile that CAUSE this collapse.


    Per Bak 1948--2002
    29 October 2002

    Per Bak, a theoretical physicist who helped to develop the concept of "self-organized criticality", has died at the age of 54. Self-organzied criticality, which was first used to study the behaviour of sand piles, can also predict phenomena as diverse as earthquakes, forest fires and <font color=red>stock-market prices</font>. Bak developed the concept in 1987 with Chao Tang and Kurt Wiesenfeld while working at the Brookhaven National Laboratory in the US.

    Per Bak was born in Denmark in 1948 and received a PhD from the Technical University of Denmark in 1974. He then joined the Brookhaven lab, where he began studying phase transitions in condensed-matter systems. Bak, Tang and Wiesenfeld developed the concept of "self-organized criticality" in 1987 while studying the theoretical behaviour of a sand pile, in which grains of sand are sprinkled onto the pile, one at a time. As the pile grows, its sides become steeper, eventually reaching a critical state when just one more grain would trigger an avalanche.

    Bak and his co-workers realised that it was impossible to predict if a particular grain would cause an avalanche. The size of these avalanches is, however, distributed according to a "power law", and they coined the phrase "self-organized criticality" to describe the pile's natural growth to a critical state. Their work showed that many phenomena in Nature are so complicated that their large-scale behaviour cannot be predicted from their microscopic origin. Self-organized criticality has since been applied to many other natural systems, including the size of earthquakes, the spreading of forest fires, the fluctuations of stock-market prices, and X-rays emitted by solar flares.

    Bak, who was based at Imperial College London since 2000, wrote the ambitiously titled How Nature Works in 1996. He also wrote "Why Nature is complex" with his second wife Maya Paczuski in the December 1993 issue of Physics World. Bak died on 16 October in Copenhagen.

    Matin Durrani is Deputy Editor of Physics World
  9. My model shows that the market really likes criticality but it is far from enough to refer to a model like the sand pile to find it. I only say that econophysicits at least have began to point in the good direction but I doubt that they will arrive at destination ... before long knowing what I know :D
  10. #10     Jan 27, 2004