Brains and stock markets follow the same rules in crises health

What do brains and the stock market have in common? This may seem like a joke, but new research reveals that the behavior of brains and economies during crises can be explained using common observations in physics.

The study opens up horizons for potential applications for predicting systems collapse as a result of crises, ranging from improving anesthesia safety based on individual brain characteristics, to the possibility of deploying methods to more effectively address other shifts in finance or climate change.

The study was conducted by researchers from the University of Michigan in the United States, and its results were published in the Proceedings of the National Academy of Sciences on October 30, and the Eurick Alert website wrote about it.

Dr. Anchul Lee, from the Department of Anesthesiology at the University of Michigan, and his research team came up with this idea after noticing that some patients under anesthesia recovered faster than others.

“Psychedelic drugs can be viewed as a controlled crisis in the brain, disrupting the brain network and causing loss of consciousness,” Lee explained.

He wondered whether recovering from a crisis such as anesthesia was similar to a country recovering from an economic crisis, such as a stock market crash, and whether both examples of collapse could be described by a basic principle that could be used to predict the outcome.

Speed ​​of collapse and speed of recovery

Brains and stock markets may seem very different, but their behavior is surprisingly similar.

Both are complex systems that typically operate in a delicate state of balance, a state scientists call the critical state, where they operate at maximum flexibility, efficiency, and information. When this balance is disturbed, the system may suddenly slide into crisis and lose those advantages.

In physics, these changes are known as phase transitions, which can occur either suddenly (first-order transition) or gradually (second-order transition).

For example, water freezing and turning into ice is a first-order transformation, where a slight drop in temperature can cause a sudden transformation.

In contrast, a magnet slowly loses its magnetism as its temperature rises, it is a second-order transformation, and it is more gradual and flexible in the face of disturbances.

The Michigan team discovered that both types of transformations occur not only in the brain during anesthesia as patients lose and then regain consciousness, but also in financial markets as they collapse and recover during economic crises.

Network characterization

The researchers sought to estimate whether a given network was experiencing a first- or second-order transformation at its turning point.

Using these results, they were able to characterize the networks as first- or second-class, and predict whether the network would witness a rapid or gradual collapse and recovery before the crisis occurred.

First-order transition networks, which are characterized by explosiveness and instability to disturbances, were more susceptible to sudden collapse and showed slower post-crisis recovery.

The researchers tested the model using studies of the 2007-2009 subprime mortgage crisis and electroencephalogram (EEG) readings of anesthetized patients.

For equity markets, markets closest to a first-order transition showed a faster collapse and slower post-crisis recovery, and countries closer to a first-order transition (explosive transition) tend to be emerging markets with lower GDP per capita.

When applied to electroencephalogram (EEG) recordings of patients under anesthesia, the researchers found that the brain’s proximity to the first-order phase transition predicted how quickly or slowly a patient would lose and regain consciousness.