Economic law of increase of Kolmogorov complexity. Transition from financial crisis 2008 to the zero-order phase transition (social explosion)

TL;DR

This paper explores the relationship between increasing Kolmogorov complexity in financial systems and phase transitions leading to crises, using models analogous to Bose condensation and social catastrophes.

Contribution

It introduces a novel connection between entropy increase, Kolmogorov complexity, and financial crises through phase transition models.

Findings

Financial bubbles and Ponzi schemes lead to economic crises.

Breakdown of the entropy law causes a phase transition in financial systems.

The model links complexity increase to social explosions.

Abstract

In Maslov (2003), a two level model of the occurrence of financial pyramid (bubbles) has been considered. We also considered the mathematical analogy of this model to Bose condensation. In the present paper, we explain why Ponzi schemes and bubbles result in a crisis in real economics. In Maslov (2005), the law of increase of entropy in financial systems, and consequently increase of Kolmogorov complexity, is formulated. If this law is broken, the financial system makes a phase transition to a different state. In Maslov (2005) the author considered a two level model of the zeroth-order phase transition which was interpreted in Maslov (2006) as an analog of social catastrophe. In the present paper we also examine this model.