Threshold Behavior and Aggregate strongFluctuationstrong.pdfVIP

Threshold Behavior and Aggregate Fluctuation Makoto Nirei SFI WORKING PAPER: 2003-09-049 SFI Working Papers contain accounts of scientific work of the author(s) and do not necessarily represent the views of the Santa Fe Institute. We accept papers intended for publication in peer-reviewed journals or proceedings volumes, but not papers that have already appeared in print. Except for papers by our external faculty, papers must be based on work done at SFI, inspired by an invited visit to or collaboration at SFI, or funded by an SFI grant. ©NOTICE: This working paper is included by permission of the contributing author(s) as a means to ensure timely distribution of the scholarly and technical work on a non-commercial basis. Copyright and all rights therein are maintained by the author(s). It is understood that all persons copying this information will adhere to the terms and constraints invoked by each authors copyright. These works may be reposted only with the explicit permission of the copyright holder. SANTA FE INSTITUTE Threshold Behavior and Aggregate Fluctuation Makoto Nirei Santa Fe Institute, 1399 Hyde Park Road, Santa Fe, New Mexico 87501, U.S.A. makoto@ January 12, 2004 Abstract This paper concerns a propagation mechanism in an economy where many individuals follow a threshold rule and interact with a positive feedback. We derive an asymptotic distribution of the propagation size when the number of the agents tends to infinity. The propagation distribution exhibits a slower convergence to a deterministic value than it would if the agents followed a smooth adjustment policy. This gives rise to significant aggregate fluctuations in a finite lumpy-adjusting economy even when the agents are hit by small indepen