Non-Normal Interactions Create Socio-Economic Bubbles

TL;DR

This paper introduces a new mechanism for socio-economic bubbles driven by non-normal network interactions, which can produce bursts of activity without fine-tuning to critical points, validated through analysis of meme stocks.

Contribution

The authors propose a novel model based on non-normal network properties that explains collective exuberance without critical tuning, expanding understanding of social system instabilities.

Findings

Non-normal networks cause surges in herd behavior across various parameters.

Financial bubbles correlate with the degree of non-normality in networks.

The model explains socio-economic bursts without fine-tuning to critical points.

Abstract

In social networks, bursts of activity often result from the imitative behavior between interacting agents. The Ising model, along with its variants in the social sciences, serves as a foundational framework to explain these phenomena through its critical properties. We propose an alternative generic mechanism for the emergence of collective exuberance within a broad class of agent-based models. We show that our model does not require the fine-tuning to a critical point, as is commonly done to explain bursts of activity using the Ising model and its variants. Instead, our approach hinges on the intrinsic non-symmetric and hierarchical organization of socio-economic networks. These non-normal networks exhibit transient and unsustainable surges in herd behavior across a wide range of control parameters even in the subcritical regime, thereby eliminating the need for the - arguably artificial - fine-tuning proximity to a critical point. To empirically validate our framework, we examine the behavior of meme stocks and establish a direct linkage between the size of financial bubbles and the degree of non-normality in the network, as quantified by the Kreiss constant. Our proposed mechanism presents an alternative that is more general than prevailing conceptions of instabilities in diverse social systems.