Transdisciplinary Physics: application of statistical physics to social issues and risk

1
Trans-disciplinary Physics application of
statistical physics to social issues and risk

• A proposal for COST action
• Peter Richmond, Ireland
• Janusz Holyst, Poland
• and
• Sorin Solomon, Israel

2
Assessment of risk is of vital concern in many
areas of public interest

• Finance and insurance
• Manufacturing and marketing
• Health
• Food safety
• Public policy making

3
Finance and Insurance

• Speculative bubbles and manias
• 17th Century - tulips
• 18th Century - early emerging markets
• South sea Mississippi
• 20th Century
• Wall St 1929, 1973/4, 1987, 1998/9
• 21st Century
• TMT 2000-200?
• Need better assessment of future risk
• Long Term Capital Management asset management USA
• Equitable Life UK
• Enron

4
Manufacturing and marketing

• Eg Just in time for ice cream and soft drinks
  manufacturing
• Consumer choice product selection

5
Health

• Heart disease

6
Food in Europe much unease, much concern..

• Salmonella in eggs
• Lysteria in cheese
• Benzene in Perrier water
• BSE in cattle
• Aids in blood
• Plague in pigs
• Dioxin in chicken
• The Coca Cola mystery
• Antibiotics in meat
• Foot and mouth disease
• Bayes Inverse probabilities

7
Public policy making

• Expenditure and risk
• structure of public transport networks
• Public health strategy
• Social expenditure
• Defence and warfare resource allocation
• Polling and social opinion

8
Research networks

• Character
• Predictions

9
Mega amounts of new financial data since 1985
10
Some stylised facts

• Power law distributions
• Clustered volatility
• Correlations

11
Agents models and forces
12
Forces in people agents and groups
buy
Hold
Sell
13
Atoms are inert Agents can learn to .

• have memory
• persuade or convince
• act as group
• Self organise into cooperative networks
• Be heterogeneous and differ in world knowledge
  and view

14
New emergent area of physics?

• UK Institute of Physics Physics in Finance 2000
• German Physical Society Socio-physics 2000
• European Physical Society has already held three
  conferences on Quantitative Finance (1999, 2000,
  2001) 2003 Warsaw
• France, Germany, US Santa Fe, Italy, Bali (?)

15
Opportunity

• Use new and powerful tools to address important
  questions of public interest
• Risk
• finance, food safety
• Group behaviour
• polling, referendums, consumer choice
• Networks
• Facilitate new European network
• NOE in FP6 (Santa Fe)
• Expand recognition of physics and IT
• Areas of great interest to young people

16
Three working groups

• WG1 Physics risk
• What does the data tell us?
• Empirical models
• Baysian belief models
• WG2 Learning agent models
• Minority games
• Evolutionary dynamics stochastic equations
• Probabalistic approaches Fokker Planck type
  equations
• Memory effects non Markovian processes
• WG3 Network dynamics topology
• Structure, dynamics and evolution

17
Management structure timeline
18
Risk COST action Benefits

• New research expertise brought to bear on issue
  of public importance
• Risk quantitative finance
• Risk manufacturing marketing
• Risk food safety
• New trans-disciplinary collaborations
• Social economic sciences ?? physical and IT
  sciences
• Bridge between innovative new member state
  programmes
• Stairway to new proposals
• Eg FP6 RTN?
• Increase understanding of innovative areas of
  physics
• Microscopic models interacting agents learning
  models networks

19
Physics and risk

• Financial and taxation database
• Shocks and correlations
• Non extensive models
• Non Markovian models
• Agent impact and market response functions
• Bayesian belief networks
• Correlation functions of risk
• Microbial growth
• Non-Gaussian/power-law variants of Black-Scholes
  options pricing model

20
Network dynamics and topology

• Network topology and growth
• Universality and the mechanisms that determine
  scaling exponents
• Network dynamics and the interplay with network
  geometry.

21
Physics and socio-economic issues

• Generalised Lotka-Volterra models
• New models of social opinion
• Social impact models and effects of localisation
• Communication in societal, economic and financial
  networks
• Modelling of collective social intelligence