Major Shocks To Complex Systems – Reverberations Before Cascading Failures Considered

Not long ago, I was talking to an investor friend of mine who also happens to be a mathematician. We were discussing complex systems, and ETF derivative algorithm tracking schemes. We got to talking about what the stock markets look like when they are topsy and how there could be a major hit, then extreme volatile activity, and then just when you think everything is stabilizing, it falls apart. We also see this in biological systems like the human body after someone has a heart attack, breaks a hip, or has a serious bout with a virus or bacterial infection.

Indeed, we could say the same for most complex systems whether it be a car, aircraft, or a piece of machinery. Occasionally something takes a strong hit, and it is damaged inside, although it runs a little rough, everything appears to be okay, but it’s not. It’s going through reverberations, and on the verge of a cascading failure event. It seems as if we can predict equipment failure, biological failures, and even major stock market pullbacks or collapses based on the rates of change, through mathematics.

There is an interesting book on this topic, it’s available as an eBook, indeed, if this topic interests you, then I think you should read it. The book is “Drift Into Failure – From Hunting Broken Components to Understanding Complex Systems,” by Sidney Dekker, Ashgate Publishing, Ltd, Burlington, VT, 2011, 220 pages, ISBN: 978-1-4094-2221-1.

This book takes you from the philosophy behind such challenges into the how and why of system failure, it’s all about complexity, chaos, and systems engineering. The book is highly relevant, and the observations are valid in every regard.

Okay so, what should we do with all this information you ask? Well, we ought to see what type of patterns and mathematics we can put towards monitoring such things. This might help us know when catastrophic failure might occur, and what we have to do to prevent it. What if we could come up with some sort of universal law for complexity and chaos theory? What if we could put real mathematics to all of this? I believe we can you see, and I believe we should.

Speaking of which, it seems to me that some of the derivative trading algorithms being used for stock market fluctuation and buy and sell triggers might be a good place to start. We might also look at reverberations on motors and machinery involving revolving parts. The number of revolutions and how far off each is from its maximum and minimum tolerances.

We might be able to know just when something is ready to come apart, an economy is ready to unfold, a stock is ready to take a hit, or a biological system desperately needs intervention to prevent failure. All I ask is that you please consider all this and think on it.

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