"Leverage: The Root of All Financial Turmoil"

During a recent German Physical Society meeting Stefan Thurner, SFI External Professor and director of complex systems research group at the Medical Univeristy of Vienna, reported that leverage--the practice by hedge funds and other investors of borrowing money to buy investments--is the root of many nettlesome properties of financial markets that classical economics cannot explain, including a propensity to crash. The model shows that many of the distinctive statistical properties of financial markets emerge together as rates of leverage climb.

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"The Post-Darwinian World" - James A. Little Theater, New Mexico School for the Deaf

We live in a post-Darwinian world, and it is no longer possible to conceive of life without some reference to Darwin's theories. But the world is more complex than Darwin supposed. Whereas an evolutionary perspective pervades all of biology, economics and politics, we are confronted by a range of post-Darwinian complexities and challenges that require a new and expanded set of ideas. Five short presentations by SFI faculty explore both the influence and the limitations of Darwin's thought on modern science, and introduce several of the ways the Santa Fe Institute has responded to and built upon Darwin's legacy.

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Portfolio.com - Physicists Try to Predict Economy: The Crash-Test Solution

Many people are regarding this current economic collapse as a “black swan” or an unpredictable sudden shift. But physicists and other scientists say it is predictable and they can prove it through science and technology. These scientists can create a computer model of our entire economy to study complex systems such as the financial markets. Yale economist and SFI External Professor John Geanakoplos is currently working with physicists in examining hedge funds and how their competition to win investors shifted the market. Economists need to partner with scientists to get a complete holistic view of the situation and work toward predicting the same situation early enough to stop in and make the necessary changes in time.

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Op Ed: Matters of Principal

John Geanakoplos, SFI External Professor, and Susan Koniak write that the plan announced by the White House will not stop foreclosures because it concentrates on reducing interest payments, not reducing principal for those who owe more than their homes are worth. The plan wastes taxpayer money and won’t fix the problem.

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Adapting to a New Economy

SFI External Professor and Professor of Economics and Information Science at Cornell University, Lawrence Blume, discusses the use of Darwinian ideas in economics ...

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President West illustrates how biological research points to mankind’s destruction

January 5, 2009 / SFI President Geoffrey West is researching the similarities between biology and human organizations such as cities. West began by researching biological networks which led him to compare his findings on natural systems to the social systems of cities. To illustrate his findings, West uses examples of an elephant versus a mouse to show how in biology, the bigger an individual is, the slower the pace of its life. However, the opposite shows true in social organizations such as cities, where the bigger the organization, the faster their actions. West attributes the difference to wealth creation of our societies. This creates an unsustainable way of life.

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Professor Watts explains why predicting is so difficult

January 4, 2009 / SFI External Professor Duncan Watts explains the two main reasons why predicting outcomes is difficult. For one, individuals are hard to predict because we can change our behavior based on subtle details such as background music or a writer’s font selection. Secondly, individuals decide many things based on popularity with others. To demonstrate this, Watts and collaborators conducted online experiments to see how certain songs become hits while other songs don’t make it. When you have people making decisions based on what other people are doing, prediction becomes impossible due to the errors of social influence.

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Does city life help or hurt your brain?

January 2, 2009 / Researchers at SFI have created complex mathematical algorithms to show how urban settings lead to higher levels of innovation. This is partly due to many strangers interacting in unpredictable ways. These researchers refer to it as “concentration of social interactions.” Other research has shown that city life impairs our memory and self-control but that nature, even a walk through a park, helps your mind. So then we need to find a way to balance the intellectual innovations while still being able to cope with stressors in densely populated urban areas.

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Study Shows Happiness is Contagious

January 1, 2009 / A New Scientist study reports how happy we are is directly linked to how happy our friends are and vice versa. SFI External Professor and sociologist at Columbia University, Duncan Watts points out that we are “inherently social creatures.” So part of how we feel and who we are, is determined by our social circles. Today we interact so frequently by computers, cell phones, and blackberries. This study shows the need we all have to interact face to face is important to our own happiness as well as our friends’.
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Professor Geanakopols discusses the high cost of capital

January 1, 2009 / Yale University professor and SFI External Professor John Geanakoplos discusses the economic impact of leveraging and deleveraging. He says the problem has to do with bigger collateral requirements than in the past. Geanakoplos states the cost of capital will stay high without policies, which would support prices of assets.
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Hedge funds can deceive you

December 17, 2008 / SFI External Professor Peyton Young and coauthor Dean Foster show how hedge funds have the power to deceive you in their study; The Hedge Fund Game: Incentives, Excess Returns, and Performance Mimics. They show how vulnerable the market is to unskilled traders. The unskilled trader may appear skilled and you wouldn’t know the difference until it is too late and the fund blows up.

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SFI External Professor Rockmore researches topological structures in the equities market network

December 16, 2008 / SFI External Professor Daniel Rockmore and coresearchers study the complex systems of the financial markets. Rockmore and colleagues created the “partition decoupling method” (PDM) which combines the partition scrubbing method and the hierarchical spectral clustering method. The PDM would be used for decomposing the correlation networks of the markets. The end result would reveal interdependencies in the network components. This information would be useful in risk management and portfolio construction.

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Experts: Thailand AIDS Vaccine Will Fail

Bette Korber, of the Santa Fe Institute, along with 21 other researchers — including Robert Gallo, co-discoverer of the AIDS virus- signed a short opinion piece recently published in the Journal of Science. The scientists believe that a $119 million federally funded experiment in which an AIDS vaccine is being tested on 16,000 volunteers in Thailand is doomed to fail and should never have been started. "They are taking two failed products and hoping that if they are combined that they are going to work," said Dennis Burton, an AIDS researcher at the Scripps Research Institute in La Jolla. "Everything I've seen about the Thai trial suggests that it doesn't have a prayer." The experiment is funded by the National Institutes of Health and the Pentagon and is being carried out by the Thai government.

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Nature - Evo-Devo:Modeling the evolutionary possible

December 1, 2008 / SFI Postdoctoral Fellow Elhanan Borenstein and SFI Resident Professor David Krakauer developed a computational model which successfully illustrates the genotype-phenotype relationships in development and evolution. The model relates how a genetic input determines the phenotypic output. It also describes the phenotypic diversity across phylogeny.

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Researchers look into social marketing in online communities

Online communities include people from many different groups and networks. Academics are now looking into the growth of these communities and how to market to them. SFI External Professor Duncan Watts shares his research regarding key influencers in reaching the masses.

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