Abstract
Multiple aspects of an economy can be regulated, tampered with, or left to chance. Economic actors can exploit these degrees of freedom, at a cost, to bend the flow of wealth in their favor. If intervention becomes widespread, microeconomic strategies of different actors can build into emergent macroeconomic effects. How viable is a “rigged” economy? How do growing economic complexity and wealth affect it? We study rigged economies with a toy model. In it, economic degrees of freedom progress from minority to coordination games as intervention increases. Growing economic complexity spontaneously defuses cartels. But excessive complexity leads to large-fluctuations regimes, threatening the system’s stability. Simulations suggest that wealth must grow faster than linearly with economic complexity to avoid this regime and keep economies viable in the long run. We discuss a real-case scenario of multiple economic actors coordinated to result in an emergent upset of the stock market.
6 More- Received 24 February 2021
- Revised 25 May 2021
- Accepted 1 July 2021
DOI:https://doi.org/10.1103/PhysRevX.11.031058
Published by the American Physical Society under the terms of the Creative Commons Attribution 4.0 International license. Further distribution of this work must maintain attribution to the author(s) and the published article’s title, journal citation, and DOI.
Published by the American Physical Society
Physics Subject Headings (PhySH)
Viewpoint
From Coordination to Collapse in Rigged Economies
Published 15 September 2021
A game-theoretical model of a rigged economy predicts the emergence of cartels followed by a risk of instability as the economy becomes more complex.
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Popular Summary
Economies are complex systems in which different actors exchange goods and wealth. To do so, they submit to rules that determine how those exchanges must proceed. These rules and other market conditions shape the flow of wealth. The feeling that markets are rigged is often present, as influential or technically skilled actors can tamper with many economic aspects, often using complex mechanisms that laymen cannot understand. Altering an economic game, however, often comes with a price. Are rigged economies sustainable? How do they change as their wealth and complexity increase? To explore these questions, we study a toy model in which economic games can be systematically tampered with, at a cost, by all actors involved.
We find that the level of intervention changes the nature of the favored economic strategies: Games in which all actors attempt to be in a minority become scenarios in which consensus is preferred. Distinct qualitative regimes emerge: Some are stable with relatively well distributed wealth; others present large fluctuations while actors frustrate each other’s strategies. We suggest ways to defuse undesired cartels and derive minimal growth factors that an economy must present to remain viable as it becomes more complex.
This toy model captures the simplest elements that a rigged economy might present. Future research should explore how the uncovered phenomenology transfers to specific systems or whether additional mechanisms might prompt novel possibilities in rigged economies. We suggest experimental setups to test some of our behavioral predictions.