Emergent organization in a model market

TL;DR

This paper explores how a simple market model self-organizes into a critical state with avalanche-like fluctuations, using a theoretical framework for interacting agents on various network structures.

Contribution

It introduces a general framework for modeling interacting traders on arbitrary networks with extremal dynamics, revealing self-organized criticality in market behavior.

Findings

Market fluctuations follow power-law distributions.

Self-organized criticality observed on different network types.

Avalanche dynamics resemble those in SOC models.

Abstract

We study the collective behavior of interacting agents in a simple model of market economics originally introduced by N{\o}rrelykke and Bak. A general theoretical framework for interacting traders on an arbitrary network is presented, with the interaction consisting of buying (namely, consumption) and selling (namely, production) of commodities. Extremal dynamics is introduced by having the agent with least profit in the market readjust prices, causing the market to self--organize. We study this model market on regular lattices in two--dimension as well as on random complex networks; in the critical state fluctuations in an activity signal exhibit properties that are characteristic of avalanches observed in models of self-organized criticality, and these can be described by power--law distributions.