Excerpt

Army ants can form a sixty-foot-wide, three-foot-deep front that moves through the forest like a bulldozer blade composed of millions of ants seeking prey. This behavior, essential to the colony’s survival, is not directed by some central authority. The coordination emerges out of each ant’s simple programmed responses to chemical signals.

At times, though, the colony’s behavior can go awry. If, by chance, the marching ants happen to circle back upon themselves, they will follow one another in a circular mill, each ant dutifully obeying signals as they collectively march themselves to death.

The science of complex systems is the study of how local interactions can lead to global consequences. Army ants illustrate both the great promise and peril of systems exhibiting emergent behavior.

Well-functioning complex systems are essential to our collective survival. Consider the markets that provide us with everything from food to energy to entertainment to foreign trade to insurance and more. Markets are driven by the actions of countless individuals, each reacting to his or her whims, the weather, and the news of the day. Remarkably, just as with army ants, out of all our individual actions emerges a higher order, a set of prices that allows us to buy and sell whatever we may desire.

Each price contains a vast amount of information. The price of a gallon of gasoline, for example, incorporates everything from the weather in a far-off port to the stability of a foreign government. It tracks refinery availability in the Gulf of Mexico and emissions regulations in California, while simultaneously taking into account the increased demand related to our summer vacation plans. 

But where do prices come from?

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