Bank run: Neuroscientists identify a mathematical equation that could predict financial crises of the sort that brought about the banking collapse of 2008.
Neuroscientists have come up with a mathematical equation that may help predict calamities such as financial crashes in economic systems and epileptic seizures in the brain.
The University of Sussex-led study, published this week (24 October 2013) in Physical Review Letters, could have far-reaching implications. If the principle is generalised in other real-world complex systems, such as climate change or disease control, it could open up the possibility of catastrophes being averted before they happen.
In a collaboration between the University's Sackler Centre for Consciousness Science and the Centre for Research in Complex Systems at Charles Sturt University in Australia, researchers used mathematics and detailed computer simulations to show that a measure of 'information flow' reaches a peak just before a system moves from a healthy state to an unhealthy state.
Such 'phase transitions' are common in many real systems, and are often highly significant: epileptic seizures and financial market crashes are just two examples of transitions. Until now, though, ways to predict these transitions in advance have been lacking. Previous measures, which peak at the transition itself, have been of no use for purposes of prediction.
For the rest of the story: http://phys.org/news/2013-10-scientists-mathematical-crystal-ball-calamities.html