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August 13, 2008
Avalanche Prediction (in Markets and Otherwise)
Fun paper up on Arxiv about avalanche prediction, with applicability to stock markets, sand and snow alike.
Avalanche prediction in Self-organized systems
Authors: O. Ramos, E. Altshuler, K. J. Maloy
Abstract: It is a common belief that power-law distributed avalanches are inherently unpredictable. This idea affects phenomena as diverse as evolution, earthquakes, superconducting vortices, stock markets, etc; from atomic to social scales. It mainly comes from the concept of ``Self-organized criticality" (SOC), where criticality is interpreted in the way that at any moment, any small avalanche can eventually cascade into a large event. Nevertheless, this work demonstrates experimentally the possibility of avalanche prediction in the classical paradigm of SOC: a sandpile. By knowing the position of every grain in a two-dimensional pile, avalanches of moving grains follow a distinct power-law distribution. Large avalanches, although uncorrelated, are preceded by continuous, detectable variations in the internal structure of the pile that are monitored in order to achieve prediction.
[via Arxiv]
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