The Finite-Capacity Adaptive Market: Dependence Collapse as a Transcritical Transition

Why do calm markets sometimes tip suddenly into crisis? This paper models a market as bounded agents, each a limited information channel choosing how strongly to couple to others; the cost of coupling is derived from information theory, not assumed. As the market's price on coupling drifts down, dependence concentrates onto a single centre, and at a threshold the diversified structure collapses in a smooth, jump-free transition, removing the diversity that cushions shocks. The paper proves this collapse and shows it in a reproducible example. It reports only what the data pin down: the concentration and the threshold's construction are firm, the exact level is a range, and individual links stay unnamed. The collapse marks a crisis as it happens; whether it forecasts one is left for out-of-sample tests.