How many social science researchers are really prepared to make decisions on the basis of their research findings? Dr. Neal Tsur of the Hebrew University of Jerusalem, who studies complex systems, decided to put his money where the theory he developed said he should put it. "I said to myself, ‘I’m going to take a step that will hurt me a lot if I’m mistaken,’ so that I would have high motivation not to make a mistake, or if I did, to understand where I went wrong. So I’m now short on the market."
Tsur Is not an economist, but a physicist who applies approaches to complex systems in physics to social science. Water turning to ice? Traffic jams at the entrance to the neighborhood? Protests? Wars? According to him, behavior in all these areas goes according a few universal rules, as does the capital market.
Tsur told us about his short position a few days before US President Donald Trump’s announcement of the new tariffs that will be imposed on US trading partners. There were falls on the stock market even before it, and Tsur is certainly not the only one with a short position. But in his view, the tariffs are only an excuse. Even before Trump’s threats, the market exhibited convergence on a pattern that made it more sensitive to an outside trigger.
A huge scientific leap forward
In complex systems, Tsur’s field of expertise, individuals affect one another in all kinds of ways, and in order to predict the behavior of the system, all the interactions have to be understood at once.
Today, thanks to the extraordinary computing power available to researchers, it’s possible to build more and more precise models of such systems. "Today, we can model what is called ‘statistical causation’, whereby I affect you, but you also affect me back, and we are trying to understand how and how much," says Tsur. "Sometimes these effects occur on completely different timescales."
What are complex systems?
"For example, the weather affects what people wear at a range of a day. What people wear, that is, the fashion industry, affects the climate, that is, the weather, at a range of a hundred years."
The ability to model complex systems has changed science fundamentally. In almost every field, innovation now comes from research into complex systems. If, in the past, psychology studied a single individual, economics studied a single firm, historians studied a single period, and these disciplines derived general rules using fairly simple statistical tools, now it is possible to model not just all the events, but also the reciprocal relationships between them.
As far as the capital market is concerned, this means that we are gradually moving from the ability to forecast the market’s general direction, knowing that there will be ups and downs, to the ability to model both the general direction and the specific ups and downs.
"One of my mentors, Prof. Sorin Solomon, said that we were at a point similar to that at which biologists found themselves when they built the first microscope. For the first time, they were able to peer into a living cell and break down the complexity we call cells, and every living thing. In complex systems, we can finally analyze data, mostly gathered in the past few years. Together with the computing capability, we’re really there. It’s a different phase."
The market sought an excuse to fall
Tsur’s aim is to formulate a few basic laws that lie behind all complex systems, be they molecules, protests, or stocks. He focuses particularly on the question of synchronization. "When my son and I do something together, we experience synchronization. When the whole neighborhood leaves home at the same time and a traffic jam is created, that’s synchronization. Societal norms and culture are synchronization. Money is a kind of synchronization tool. The learning machines that lie behind artificial intelligence are also networks the components of which work in synchronization with one another, and the same goes for the human brain."
Synchronization is a gradual process. For example, audience applause. One person starts, another joins in, the audience starts to applaud together, and gradually the rhythm becomes more and more uniform. It’s the same in the case of ice cubes. When the temperature falls, freezing doesn’t happen all at once. A few molecules in a few spots of the liquid start to behave like ice, and that "infects" the molecules around them.
The same thing happens in protests. It’s impossible to predict which person will switch to "protest mode" and draw others after him or her, but, using his models, Tsur can say when the public is at the right "temperature" for protest mode to arise.
In fact, the timing of the outburst of protests was the subject of his doctoral thesis. We spoke to him about it back in 2021, in the context of a project on five promising doctoral students. He developed a model that reveals how ready the public is to be affected by external events, so that it’s possible to say whether a certain event will bring 5,000 people onto the streets, or 50,000.
The model that Tsur constructed was based on hits to Wikipedia. He didn’t examine which entries people read, but how many people read the same entries. The more that the public reads the same entries, the more primed it is for joint action, such as a protest march. The molecules have become more sensitive to one another.
In your model, what is it that you see in the behavior patterns of traders before the market starts to fall?
"A basic rule is that synchronization reduces the individual’s freedom of action. Think, for example, of a crowd doing a Mexican wave in a stadium. The effect is amazing, and gives us a taste of what a society can do if everyone works together. But try being the person who doesn’t take part in the wave, and you’ll understand what’s meant by the statement that when a group or society is synchronized, each individual has less freedom of choice."
Thus the whole group gathers momentum in a certain direction, but it also becomes more sensitive to external impact. "Think of the difference between someone who hits a body of water, causing the molecules to scatter in every direction, and someone who hits an ice cube. The whole cube will fly off as a single entity in one direction.
"That’s what we see on the capital market, and that’s the finding of my latest research on the subject, which has not yet been published. We modeled traders’ behavior, and the more synchronization we saw between traders specializing in different periods, that is, when day traders and long-term traders start doing similar things, the stronger the impact that we saw of external events - events with an impact in the same direction as they were already moving, but also events that pushed in the opposite direction to that in which the market was moving up to that point."
So the market converged on some point at which it solidified, and waited for an event to act on it. In the language of the market, it was looking for the fall, while the substance of the event, in this case, Trump’s tariffs, is of less significance.
"Exactly. People are an organism motivated by narratives, and that applies to events of this kind as well. On the capital market, the story is one of the things that draws us all to synchronize with one another in the first place. And then, when momentum has built up, the system is ripe for a trigger. And indeed, there’s an event, a trigger. But according to our approach, the trigger works because the system was ready. If the story we tell ourselves is only about the trigger, we miss some of what is really going on."
The problem with machines
After the trigger event, which pushes the entire synchronized group in the opposite direction to that in which it was moving before, there will generally be a decline in synchronization, Tsur says. And then all the molecules, or the people, will resume behavior that has a greater degree of arbitrariness, or, as we experience it, greater freedom of choice. That is, until synchronization builds momentum again.
Your decision to go short on the stock market has already paid off. Can you tell us about other decisions you have made on the basis of your theory?
"I haven’t yet carried out comprehensive research on the housing market, but there are signs that could indicate that it too is crystalizing in a way that is liable to make it sensitive to a crisis trigger. There’s a norm today according to which everyone must own a home at any price, and this norm could be broken by a trigger, for example, insolvency of a large construction firm."
Even if you discover the basic rules of complex systems, can you really predict their directionality? After all, it’s a case of an infinite number of variables. You can never model everything, and there will always be an element of chaos.
"True. I don’t think that my mission is to develop a tool that day traders will find attractive. Measuring synchronization cannot predict exactly when there will be a fall. It can only say that the public mood is such that it makes the system sensitive to a trigger."
Published by Globes, Israel business news - en.globes.co.il - on April 8, 2025.
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