Self-Organized Criticality in Economic Fluctuations: The Age of Maturity

Abstract

Self-Organized Criticality (SOC) has been proposed as a paradigm that may rationalize the emergence of macrofinancial fluctuations. The wave of innovative thinking sparked by this proposal continues to produce interesting contributions in many areas of economics, ranging from macroeconomics to finance. In this review, we propose a guided tour to these achievements, highlighting that analysis of SOC equilibria is a promising avenue to establish a nexus between i) a statistical equilibrium characterized by the spontaneous emergence of dynamic critical fluctuations and ii) a strategic equilibrium concept modeling a large number of interacting players. The critical state is the stable outcome arising from a trade-off between cooperation and competition.