Investigating Financial Markets as Complex Adaptive Systems (CAS) with Synthetically-Generated Data
Introduction Traditional financial models assume markets are efficient, linear, and predictable. But real markets behave as Complex Adaptive Systems (CAS) - networks of interacting agents that self-organize, adapt, and generate emergent patterns. Using synthetically-generated data to mimic the price of a financial asset, this article examines eight key properties that distinguish CAS from traditional equilibrium models. 1. Path Dependence Markets exhibit path dependence: different sequences of events lead to different outcomes, even from identical starting conditions. History matters because early events can "lock in" trajectories that constrain future possibilities. The visualization shows five simulated price paths starting from the same point. Despite identical initial conditions, different sequences of regime shifts and shocks cause the paths to diverge dramatically. By day 500, outcomes range from 40% losses to 150% gains - demonstrating that the order and timing of e...