Oleg V. Pavlov

Asset price dynamics with heterogeneous beliefs and local network interactions

In this paper we investigate the effects of network topologies on asset price dynamics. We introduce network communications into a simple asset pricing model with heterogeneous beliefs. The agents may switch between several belief types according to their performance. The performance information is available to the agents only locally through their own experience and the experience of other agents directly connected to them. We model the communications with four commonly considered network topologies: a fully connected network, a regular lattice, a small world, and a random graph. The results show that the network topologies influence asset price dynamics in terms of the regions of stability, amplitudes of fluctuations and statistical properties.

Unsolicited Commercial E-Mail: Empirical Analysis of a Digital Commons

Unsolicited commercial e-mail (UCE) is a significant problem of the digital commons, but there has been little empirical analysis of proposed solutions and underlying mechanisms. This study, based on an analysis of 47 million inbound e-mail messages drawn from a cross-section of e-mail inbox owners over a one-year period, characterizes resource overuse in the e-mail commons. The absence of a growth trend in UCE message volume raises questions about the sampling methodologies underlying media reports about spam. The distribution of UCE messages reveals a cyclical trend, peaking in mid-week and subsiding on weekends, that can be explained in part by the trend of regular e-mail messages—an unanticipated finding given the difference between UCE and ordinary e-mail communication. Ruling out technological constraints and workweek conventions, the study suggests that these covarying patterns come about because UCE senders strategically exploit the unique features of the on-line commons, including instantaneous feedback, information transparency, identity misrepresentation, and technological progress. Analysis of these properties can lead to improved management of the digital commons.

Stability in a Superpower-Dominated Global Economic System

This paper provides an example of a system dynamics model that incorporates soft variables. The model examines the challenges that a superpower faces while maintaining its position in the global economic system. The effects on aggregate welfare of the population at home and abroad, as well as, issues of sustaining authority in the long run are explored through experimentation with a computer model. This theory is an extension of the framework developed by Saeed (1990), which was used to understand political instability and the failure of the government to stay committed to welfare agendas in the developing countries. The present model captures the interaction between several institutional actors involved with the economic and the governance systems. They include the public, the authoritarian regime, the reformist movements that seek change within the existing framework, and the dissident movements that turn to violent methods.

Dynastic Cycle: A Generic Structure Describing Resource Allocation in Political Economies, Markets and Firms

A generic system embodies basic principles and insights that are common to a set of diverse cases and situations. This paper presents a new generic system that we name the dynastic cycle structure. It is based on a stylized model of events from the Chinese history. The model describes resource allocation between social, asocial and control uses in political economies, markets and firms that experience cyclical behaviour and homeostasis symbolizing low levels of performance. Numerical simulations with the model are used to understand the internal dynamics and to test several policy scenarios.

Dynamic Analysis of an Institutional Conflict: Copyright Owners Against Online File Sharing

Peer-to-peer technology has made massive unsanctioned music exchange possible, which may have a profound effect on the recording industry. Record labels have responded to the emergence of online music networks with litigation and are also considering self-help measures. It is currently not obvious whether or not these strategies will ultimately stifle online file sharing in the long term. With this paper we attempt to add to our understanding of the conflict within the institution that is the commercial music industry. We conduct an institutional analysis of the industry in transition and extend the traditional pattern modeling methodology with a formal resource-based model of a representative online music network. The model accounts for complex causal interactions between resources, private provision of common goods, free riding and membership dynamics. In a series of experiments that emulate the offensive against music networks we show that a peer-to-peer system may be quite resilient to outside disturbances. The experiments also demonstrate that policies rank differently in their effectiveness based on a selected yardstick.

Spam and Beyond: An Information-Economic Analysis of Unwanted Commercial Messages

The phenomenon of unwanted commercial messages (UCM), including e-mail spam and emerging forms that target other Internet communications facilities, is analyzed from an information-economics perspective. UCM traffic pays off for its senders when it is noticed and consumed by Internet users; the industry is, therefore, dependent on a common-pool resource that is accessed through an information asset. An analytical model of the industry is derived and solved computationally, and two dimensions of information quality held by the senders of UCM traffic are manipulated in the model. It is shown that such manipulations can moderate over time both the number of UCM campaigns undertaken and the amount of Internet bandwidth consumed by UCM. Manipulations of the information-quality dimensions affected by e-mail filtering reduce the amount of traffic that penetrates an Internet users attention space but increase the amount of Internet bandwidth consumed. This is consistent with data reported by e-mail security providers as filters have been deployed. It is also shown that both public and private entities have adopted policies and practices with unintentional informational side effects. These effects may have led to more rather than less, spam e-mail traffic. It is concluded that the lessons learned from the case of e-mail spam can be applied to the development of policies and practices for mitigating newer, emerging forms of UCM, including versions targeting instant-messaging systems and Web logs.

Improving Instructional Simulation With Structural Debriefing

Background. Research shows that learning and task performance improve when participants in management exercises understand the structure of the system they control. However, the majority of business simulators are black-boxes. Aim. This article introduces structural debriefing, which is a debriefing activity aimed at helping students learn about causal relationships, feedbacks, accumulations, and delays within a black-box simulation. Method. A structural debriefing can be prepared and facilitated by following the Structural Debriefing Protocol. Results. A pilot study was conducted in which undergraduate students participated in a structural debriefing of The LITTLEFIELD TECHNOLOGIES, a popular simulation for teaching principles of operations management. The students were able to complete all eight steps of a structural debriefing, but required considerable time (three academic terms) to do so. Not every instructional simulation will require all the steps or such a large time commitment. Conclusion. The successful completion of the pilot study demonstrates that structural debriefing is a useful debriefing technique. However, to be effective, the scope and format of a structural debriefing activity must suit practical and pedagogical considerations.

The Design of Educational Programs in System Dynamics at Worcester Polytechnic Institute (WPI)

Educational programs leading to degrees in system dynamics are rare and thus of critical importance to the future of the field of system dynamics. However, to a large extent such programs have not yet been made transparent to the system dynamics community as a whole. The present article describes the design and rationale for undergraduate and graduate programs at Worcester Polytechnic Institute (WPI). The goal of the article is to invite feedback from the system dynamics community about our specific programs as well as to facilitate wider discussion about the appropriate content, design, and pedagogy of degree programs and courses in system dynamics.

Toward an information-compatible anti-spam strategy

As filters improve, the information assets of spammers become more valuable and lead to more, not less, overall spamming activity. This is troubling to contemplate, because it means no amount of spending on better filters will be enough. The next levels of escalation might then involve sender-receiver prearrangement, a new accounting infrastructure or, perhaps, payment or bonding prior to email delivery. We would characterize these steps as capitulation to the spammers, should they occur, because they would mean the end of the free, anonymous, and neutral email that we know today. To avoid capitulation, we argue that researchers should look beyond new spam-identification technologies and consider the information-economic implications of their deployment.

Richard Goodwin's Keynesian cobweb: theme and variations

Variations of Richard Goodwins graphical model for explaining the rudiments of Keyness real/monetary cycle theory are presented that can also be explicated graphically, but which possess more plausible dynamic properties, namely, the generic possibility of irregular, asymmetric fluctuations.