A mechanism for pockets of predictability in complex adaptive systemsJ. V. Andersen1, 2 and D. Sornette2, 3
1 UFR de Sciences Economiques, Gestion, Mathématiques et Informatique CNRS UMR 7536 and Université Paris X-Nanterre - 92001 Nanterre Cedex, France
2 Laboratoire de Physique de la Matière Condensée, CNRS UMR 6622 and Université de Nice-Sophia Antipolis - 06108 Nice Cedex 2, France
3 Institute of Geophysics and Planetary Physics and Department of Earth and Space Sciences, University of California - Los Angeles, CA 90095, USA
received 3 January 2005; accepted 12 April 2005
published online 4 May 2005
We document a mechanism operating in complex adaptive systems leading to dynamical pockets of predictability ("prediction days"), in which agents collectively take predetermined courses of action, transiently decoupled from past history. We demonstrate and test it out of sample on synthetic minority and majority games as well as on real financial time series. The surprising large frequency of these prediction days implies a collective organization of agents and of their strategies which condense into transitional herding regimes.
89.65.Gh - Economics; econophysics, financial markets, business and management.
02.50.Le - Decision theory and game theory.
89.75.-k - Complex systems.
© EDP Sciences 2005