Abstracts

The feeling of confidence or trust is widely considered a crucial ”macro” variable to describe the dynamics of the financial markets. It is driven both by objective information (e.g.: the state of the economy) and interaction between the agents. Moreover, it is highly sensitive to expectations about what other people expect, which is one of the fundamental feedback loops for self-fulfilling prophecies. Sudden evaporation of trust tends to reinforce financial crises, for instance by causing liquidity breakdowns. In contrast to more static approaches, we model both the creation and destruction of the network over time, with a mutual feedback between one’s links to one’s trustworthiness. The dynamics of this model are such that losing trust is a faster phenomena than gaining trust, triggering panic avalanches which cause the sudden disintegration of the network for specific parameter values.