Market Network
The word “market” is interesting.
Like may interesting words in the english language, its meaning “floats”. In the dictionary, there are multiple numbered definitions for the meaning of markets. It can be a place, a thing, a concept, an action, or take multiple other forms based on its context.
In a sense, these would all be relevant to the ARCH Term I am using for it here. Whereas, markets are a representation of a network. In particular, a network mapped over human behavior in exchanging resources, which is a key component in the assignment of the word “market”, to this particular network.
To further abstract the concept, according to graph theory, any old system is essentially made up of 2 parts: nodes and links. Any shape or function can be represented by these two parts. The determining factor in how to represent a particular shape or function, comes down to the relationships that the nodes have with each other and the flow of those interactions along their links.
Human beans…
There are self balancing networks in the universe that (barring the removal of human behavior) would appear to behave similarly to a market. For example: Earths ecological systems that balance weather, resources, and biome characteristics to operate in a self reliant network. Though the human element adds a thick layer of complexity and is thus categorized separately.
The basis of the aforementioned human element operates within the network as a driving force that is in and of itself separate than core motivating factors such as food and shelter; and can be categorized as follows:
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Desires and Aspirations: Markets reflect our collective desires and aspirations. What we buy, what we invest in, reveals what we value, both individually and as a society. From basic needs to luxury goods, the market mirrors our pursuit of comfort, status, and happiness. Think about the rise of “experience economies” – what does that mirror about our changing values?
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Fears and Anxieties: Just as markets reflect our hopes, they also mirror our fears. Market crashes and panics can be seen as collective expressions of anxiety about the future. The way we react to uncertainty in the market reveals our risk tolerance and our psychological vulnerabilities. Consider how market volatility mirrors societal anxieties about economic stability, technological disruption, or geopolitical events.
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Social Values and Norms: What’s considered “in demand” or “ethical” in the market often reflects prevailing social values and norms. The rise of fair trade, sustainable products, and socially responsible investing shows how markets can mirror (and sometimes influence) our evolving ethical considerations. Conversely, the persistence of markets for harmful products or exploitative labor practices reflects darker aspects of human behavior and societal structures.
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Cognitive Biases and Irrationality: As mentioned before, markets also mirror our cognitive biases and irrationality. Herd behavior, speculative bubbles, and market manias demonstrate how our emotions can override rational decision-making. This mirroring effect can be both fascinating and frightening, revealing the limits of human rationality. **Cooperation and
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Competition: Markets are arenas where cooperation and competition intertwine. While competition is often seen as the driving force, cooperation is essential for markets to function. Supply chains, for example, involve intricate networks of cooperation. The balance between these two forces reflects something fundamental about human social dynamics.
The Stock Market
What began as an interconnected web of human beings speculating on future earnings of corporations in the United States, has now evolved into the erectus spinea supporting the U.S. economy. The average American relies on the stock market to give a representative temperature reading of the over all financial health of the nation.
As a professional participant in the U.S. capital markets, I routinely have close brushes with the intestines of this system. Like many other complex systems, the shape of the U.S. stock market tends to take on fractal like properties; exploding into subsystems and interwoven segments that work together; functionally, in large part primarily out of sheer luck and of course from built in strict regulatory frameworks.
“I am a loose collection of parts, flying in formation - My grandfather”
Layers of abstraction
Observation points 1 & 2
As mentioned above, when viewed from a high enough observation point or a sufficient level of abstraction, the seemingly infinite components and systems that comprise the U.S. Stock market are seen to exhibit a simplistic structure. Human and corporate participants exchanging dollars for participation in the growth patterns of corporations and their associated businesses.
As you zoom in, you notice that despite the fact that nearly half of the U.S. population has exposure to the market, the core exchange partners actually participating are machines. Very seldom are retail human participants actually exchanging shares amongst themselves. So instead of “web” of market participants, you have a wheel and spoke design with only the spokes (in this case the market makers) being networked to each other. What appeared on the surface as a latticed system with many nodes connecting to each other, in fact have much fewer edges than initially expected and larger but fewer nodes. The body of each node however, contains lots of sub nodes.
These sub nodes are comprised of actual speculators, traders, and investors that are placing orders into the system at this level (there are sub levels where greater volumes of stock are traded but in this case we are talking surface market activity).