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Sudden trust collapse in networked societies

Author

Listed:
  • João da Gama Batista

    (MAS - Mathématiques Appliquées aux Systèmes - EA 4037 - Ecole Centrale Paris)

  • Jean-Philippe Bouchaud

    (CFM - Capital Fund Management - Capital Fund Management)

  • Damien Challet

    (MAS - Mathématiques Appliquées aux Systèmes - EA 4037 - Ecole Centrale Paris)

Abstract

Trust is a collective, self-fulfilling phenomenon that suggests analogies with phase transitions. We introduce a stylized model for the build-up and collapse of trust in networks, which generically displays a first order transition. The basic assumption of our model is that whereas trust begets trust, panic also begets panic, in the sense that a small decrease in trust may be amplified and ultimately lead to a sudden and catastrophic drop of trust. We show, using both numerical simulations and mean-field analytic arguments, that there are extended regions of the parameter space where two equilibrium states coexist: a well-connected network where confidence is high, and a poorly connected network where confidence is low. In these coexistence regions, spontaneous jumps from the well-connected state to the poorly connected state can occur, corresponding to a sudden collapse of trust that is not caused by any major external catastrophe. In large systems, spontaneous crises are replaced by history dependence: whether the system is found in one state or in the other essentially depends on initial conditions. Finally, we document a new phase, in which agents are connected yet distrustful.

Suggested Citation

  • João da Gama Batista & Jean-Philippe Bouchaud & Damien Challet, 2015. "Sudden trust collapse in networked societies," Post-Print hal-01119120, HAL.
  • Handle: RePEc:hal:journl:hal-01119120
    DOI: 10.1140/epjb/e2015-50645-1
    Note: View the original document on HAL open archive server: https://hal.science/hal-01119120
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    References listed on IDEAS

    as
    1. Pin, Paolo & Franz, Silvio & Marsili, Matteo, 2008. "Opportunity and Choice in Social Networks," Coalition Theory Network Working Papers 6232, Fondazione Eni Enrico Mattei (FEEM).
    2. Ricardo J. Caballero & Alp Simsek, 2009. "Complexity and Financial Panics," NBER Working Papers 14997, National Bureau of Economic Research, Inc.
    3. Dion Harmon & Blake Stacey & Yavni Bar-Yam & Yaneer Bar-Yam, 2010. "Networks of Economic Market Interdependence and Systemic Risk," Papers 1011.3707, arXiv.org, revised Nov 2010.
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    Cited by:

    1. Federico Guglielmo Morelli & Michael Benzaquen & Marco Tarzia & Jean-Philippe Bouchaud, 2020. "Confidence collapse in a multihousehold, self-reflexive DSGE model," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 117(17), pages 9244-9249, April.
    2. Pietro DeLellis & Anna DiMeglio & Franco Garofalo & Francesco Lo Iudice, 2017. "The evolving cobweb of relations among partially rational investors," PLOS ONE, Public Library of Science, vol. 12(2), pages 1-21, February.
    3. Federico Morelli & Michael Benzaquen & Marco Tarzia & Jean-Philippe Bouchaud, 2020. "Confidence Collapse in a Multi-Household, Self-Reflexive DSGE Model," Post-Print hal-02323098, HAL.
    4. Stanislao Gualdi & Marco Tarzia & Francesco Zamponi & Jean-Philippe Bouchaud, 2017. "Monetary policy and dark corners in a stylized agent-based model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 12(3), pages 507-537, October.
    5. Jean-Philippe Bouchaud, 2019. "Econophysics: Still fringe after 30 years?," Papers 1901.03691, arXiv.org.
    6. Aytaç, Beysül & Coqueret, Guillaume & Mandou, Cyrille, 2018. "Herding behavior among wine investors," Economic Modelling, Elsevier, vol. 68(C), pages 318-328.

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