“As scientists we shouldn’t be begging for funds!”
(Vienna, 27. September 2010) How altruistic are humans and how do they deal with their friends and enemies? And under which constellations does an economic system collapse? These and other questions are the focus of Prof. Stefan Thurner’s work.
The physicist heads the Institute of the Science of Complex Systems, currently advises the OECD in issues related to financial market supervision, and is a part-time professor at the Santa Fe Institute in New Mexico, one of the most renowned think tanks in the US. We asked him what human relations on a small scale tell us about the major questions of our society, how men respond to women in their networks and why so many companies are so inefficient. The interview with the physicist and financial economist is as exciting as the topics which he deals with!
Professor Thurner, what exactly does quantitative study of complex systems mean?
Thurner: We study systems which we do not have under control. These can be cells, social systems or living beings, for example. One thing they all have in common is that Popper’s classic falsifiability cannot yet be applied because these systems cannot yet be falsified by scientific means. Here social experiments do not suffice either, to date not enough empirical data material is available that would enable complex systems to be understood by scientific means.
These systems continually change their boundary conditions, in other words, what will happen in the future depends on the details of the present. Network aspects are also decisive: who has how much interaction with whom? This is extremely complex, no person can see the big picture here. Only with the computer has it become possible to simulate artificial worlds to produce data that is not available in the real world. In this way our questions and hypotheses become calculable and understandable.
To test hypotheses of social and natural sciences you are examining the behaviour of players of the online game Pardus, whose number totals about 300,000. How do you find out that people in the virtual world behave like in the real world?
Thurner: This game has been developed by the mathematician Michael Szell. It works like “Second Life”, only it takes place in outer space. In Pardus the players adopt new identities, seek jobs, earn money and spend it, have enemies and friends, and communicate with each other all the time.
But how can you know that the players behave like in real life?
Colleagues of ours have measured data on the telephone behaviour of the Spanish and Belgian population. We have compared this data with the data of Pardus players and found that communication is nearly identical. Friendship networks, for example, are also similar. This means that players in their artificial world cannot behave so differently from in the real world.
What do you want to research with this dataset and what can you tell us at this point?
Thurner: We have at our disposal a sensational dataset, the largest complete dataset in the world concerning a society and use it to empirically test sociological hypotheses by conducting network analyses of player movements. By looking at local relations we can project these findings to entire societies. We use local relations to project a society’s collective characteristics, which in this way become more predictable for the future.
Could you give us a concrete example?
Thurner: When do systems topple? At present no-one knows where exactly the critical point is. But boundary conditions can be changed in a way that the probability of a crash decreases - by many magnitudes. Worldwide complexity research has the tools to test changes by using models. We have developed a model which specifies a critical point for the stability of financial markets.
How do you assess the risk of another crisis?
Thurner: The risk is very high. Financial markets are at the same point where they were before the crisis. Speculative investments are being made with borrowed money as if nothing had happened. Complex systems are frequently robust and can cope with a lot for a long time without changing much. But drastic mistakes of policy-makers or business stakeholders, criminal activities or even interventions such as bank rescue schemes can reverse the effect of a “stabilisation measure” at a certain, critical point. Suddenly nothing can be controlled any longer and the system crashes. Where states can no longer fulfil their core tasks, such as pensions and social systems, where hospitals no longer function and salaries are no longer paid out, people will panic and there is the risk of riots breaking out.
You are saying that the bank rescue schemes which have been initiated by many states could render the opposite effect?
Thurner: The current situation is truly dangerous. Due to the enormous guarantees which of course tie up money, the states’ sphere of action has been drastically reduced. The point is: if people lose only their own money due to speculations, nothing will happen. Where speculations are made with money from loans and too many people are affected, the bubble will burst and everything will go wrong. The English term leverage is also used to designate the degree of third-party financing of speculative investments. Such loans are used widely in the world of finance. If a private person takes up a loan to speculate with shares we have a leverage of seven. Foreign currency speculations are leveraged at 100. In our model, from a leverage of ten upwards the probability of a state collapsing increases by many magnitudes. The system is stable if the leverage is clearly below five.
How was your model developed?
Thurner: By conducting simulations over thousands of time units we generate artificial structures which also exist in the real world, such as price developments. Where these characteristics occur, our model is okay. Then we see, for example, what a stable network should look like and how developments are going in this direction. This can lead to intelligent self-regulation - rather than direct intervention with an unknown outcome.
What do you suggest?
Thurner: Transparency and informing the public about who is in debt where and by how much, and what is happening with the money. Because some of this data is available at the central banks and in this way we would finally be informed. We are suggesting that a form of global thermometer be introduced: the degree of leverage is measured in every relevant financial institution, and if it gets too hot somewhere, the amount of granted loans is reduced.
Again back to Padus, you are evaluating the activities of 300,000 players. Is humankind good?
Thurner: Our players mostly act socially and cooperatively, although the readiness to use violence is much higher in online games than in real life.
Are there any differences between women and men?
Thurner: Yes - women speak more, are more successful in the game than men, and are far less aggressive. Differences are also found in dealings with their own networks: women introduce their girlfriends to each other. Men don’t do that in this way, they fear that competing alliances may develop. While women are then backed by a wide network in difficult situations, men tend to be alone in times of crises. In their dealings with enemies, however, women are more cautious: if a woman is faced with hostility, she reacts passively. If a man gets an enemy, he will respond within a minute and fires hostility back.
Regarding communication culture, you can detail when and in what way communication works in a company - or where and why it is inefficient.
Thurner: What we know is that enemies do not communicate with each other, but friends do communicate a lot. Efficiency is only found where communication is smooth and we can tell how efficient a company is from its communication culture. We have developed a model that shows us what a company's organised flow of communication is like. Which departments communicate with each other how often and where are there blocks? For the evaluation we only need in-house phone lists, for example.
What drives you on and what is an obstacle to your work?
Thurner: How can we develop a new form of mathematics and apply it to the life sciences, this is important! The CeMM in the new Anna Spiegel Research Centre is a major step in this direction, and we are looking forward to cooperating with colleagues from the bio-informatics group. But top-level research requires funds. We have top staff at our institute but we cannot offer the salaries to keep them. Scientists worldwide are being increasingly reduced to beggars for funds. But I want to spend less time writing letters asking for help and more time carrying out scientific work.