Self-Organized Criticality in Synchronized Loss Dynamics - A Behavioral Account

Carlos Pedro S. Goncalves
ISCTE − Business School
Miguel A. Ferreira
ISCTE - Business School

Behavioral science and finance are the common element behind the different approaches to artificial financial markets. However, we can divide these approaches in two major branches, one is the branch that stems from a biological framework of analysis and, the other, is the branch that stems from a physical framework.

Although these two branches may be present in a given model, we usually find the presence of one or the other as dominant. For instance, the Santa Fe Artificial Financial Market combines behavioral finance and economics with genetic algorithms that are learning algorithms with a largely biological nature.

Goncalves (2004) artificial financial market, on the other hand, was largely influenced by the physical line of research. In particular, by Doyne Farmer’s work on agent-based modelling and econophysics, Sornette’s work in econophysics (in the modelling of financial crashes), Vaga’s coherent market hypothesis and the synergetics approach to complexity.