Market Crashes as Critical Phenomena? Explanation, Idealization, and Universality in Econophysics

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Jhun, Jennifer; Palacios, Patricia; Weatherall, James Owen
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We study the Johansen-Ledoit-Sornette (JLS) model of financial market crashes (Johansen, Ledoit, and Sornette [2000,]. "Crashes as Critical Points." Int. J. Theor. Appl. Finan 3(2) 219-255). On our view, the JLS model is a curious case from the perspective of the recent philosophy of science literature, as it is naturally construed as a “minimal model” in the sense of Batterman and Rice (Batterman and Rice [2014] “Minimal Model Explanations.” Phil. Sci. 81(3): 349–376. ) that nonetheless provides a causal explanation of market crashes, in the sense of Woodward’s interventionist account of causation (Woodward [2003]. Making Things Happen. Oxford: Oxford University Press).