Dresden 2011 – scientific programme

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 8: Award Ceremony: Young Scientist Award for Socio- and Econophysics

SOE 8.1: Invited Talk

Monday, March 14, 2011, 17:00–17:45, HSZ 02

Dragon-kings versus black swans: diagnostics and forecasts for the on-going world financial crisis — •didier Sornette — ETH Zurich, Department of Management, Technology and Economics, Kreuzplatz 5, 8032 Zurich, Switzerland

Extreme fluctuations or events are often associated with power law statistics. Indeed, it is a popular belief that ``wild randomness'' is deeply associated with distributions with power law tails characterized by small exponents. Here, we document in many different systems that there is life beyond power law tails: power laws can be superseded by ``dragon-kings'', monster events that occur beyond the power law tail. Dragon-kings reveal hidden mechanisms that are only transiently active and that amplify the normal power law fluctuations. Evidence of the dragon-king phenomenon is found in the statistics of financial losses, economic geography, hydrodynamic turbulence, material rupture, avalanches in random directed polymers, earthquakes, epileptic seizures, and cyber risks. The special status of dragon-kings open a new research program on their predictability, based on the hypothesis that they belong to a different class of their own and express specific amechanisms amplifying the normal dynamics via positive feedbacks. The dragon-king approach allows us to understand the present World financial crisis as underpinned by two decades of successive financial and economic bubbles. We will demonstrate how market risk management can be enlarged by combining strategic, tactical and time-varying risk analysis (see www.er.ethz.ch/fco)