Causal Entropic Forces, Narratives and Self-organisation of Capital Markets

Abstract

The intersubjective markets hypothesis is revisited with respect to causal entropic principles. While the financial system is assumed to naturally evolve towards uncertainty, a spontaneous and unstable form of order emerges, thanks to narratives, leading to self-organised criticality. This article also includes a discussion about main hypotheses in finance, about the link between volatility spikes and entropy, and, finally, about the important role of narratives as forms of collective intelligence. JEL: D40, D50, D53, D70, D80