Why the Finance Crisis?

Investors in world finance markets are increasing their interest in physics. It helps them understand more of how the markets work. In modern banking different kinds of loans link together and get moved around, forming an unstable network.

Until recently, understanding these changes in the markets was thought of as an art, inspired by the way people felt about business.

Now, it shows all the attributes of complex systems and networks. Money markets vary like other complex systems: reacting chemicals, the web of internet users, and even pollen grains moving on the surface of water: they all have many unknown forces. Albert Einstein talked about these forces in 1905 and some are now called random walks.

220px-Brownian_motion_large    280px-Walk3d_0

Think of these dots as chemicals, pollen grains or bank loans. Through time they resemble the concept of Brownian Movement, what happens when particles interact with a surface:

220px-Brownianmotion5particles150frame     Translational_motion

Antony Gormley took an algorithm that describes these random walks

and made his sculpture Quantum Cloud.Antony_Gormley_Quantum_Cloud_2000  Through the apparent chaos of these randomly placed sticks, an image emerges – something very complex – a human being.

More interaction between science and art came from Robert May who compared ecology to banking in 2008 (Nature 451, 893-4), asking whether these large complex systems can ever be stable to allow easier descriptions. After a lot of complicated maths he came up with a very simple idea, that the more complex a system the more can go wrong.

One comment on “Why the Finance Crisis?

  1. weggieboy says:

    This came through much like the moment I had the epiphany that math and music are closely related. I don’t understand this to the point of being able to explain it to anyone else, but I felt a dim light turn on in my head! Great blog, Michael!

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