A Creepy World

18 Pages Posted: 2 Feb 2014

See all articles by Didier Sornette

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute

Peter Cauwels

ETH Zurich; Director Quaerens CommV

Date Written: October 6, 2013

Abstract

Using the mechanics of creep in material sciences as a metaphor, we present a general framework to understand the evolution of financial, economic and social systems and to construct scenarios for the future. In a nutshell, highly non-linear out-of-equilibrium systems subjected to exogenous perturbations tend to exhibit a long phase of slow apparent stable evolution, which are nothing but slow maturations towards instabilities, failures and changes of regimes. With examples from history where a small event had a cataclysmic consequence, we propose a novel view of the current state of the world via the logical scenarios that derive, avoiding the traps of an illusionary stability and simple linear extrapolation. The endogenous scenarios are "muddling along", "managing through" and "blood red abyss". The exogenous scenarios are "painful adjustment" and "golden east".

Keywords: systemic crisis, change of regime, financial bubble, bifurcation, instability, precursors, prediction, scenarios

JEL Classification: G01, G17

Suggested Citation

Sornette, Didier and Cauwels, Peter, A Creepy World (October 6, 2013). Swiss Finance Institute Research Paper No. 13-55. Available at SSRN: https://ssrn.com/abstract=2388739 or http://dx.doi.org/10.2139/ssrn.2388739

Didier Sornette (Contact Author)

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
Switzerland
41446328917 (Phone)
41446321914 (Fax)

HOME PAGE: http://www.er.ethz.ch/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Peter Cauwels

ETH Zurich

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Director Quaerens CommV ( email )

Bruges
Belgium

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