The concept of fingers of instability describes the natural evolution of systems towards a 'critical state' where they become unstable and prone to chaotic outcome of simple events.
The famous book Ubiquity www.amazom.com/ubiquity introduced (to me at least) the notion of "fingers of instability".
The author describes an experiment of dropping grains of sand, one at a time, until they pile up and one grain starts an avalanche. Three scientists analyzed this in more detail, by simulating many such piles on the computer and found that there is no way to predict the size of the avalanches.
What they did though, was to colour the pile of sand based on how steep the sides were: green for relatively flat and stable up to bright red for unstable steep sides. When a grain of sand is dropped on a red area, it could start a massive avalanche, by domino-like action.
And here's a quote of their finding:
"To find out why [such unpredictability] should show up in their sandpile game, Bak and colleagues next played a trick with their computer. Imagine peering down on the pile from above, and coloring it in according to its steepness. Where it is relatively flat and stable, color it green; where steep and, in avalanche terms, ‘ready to go,’ color it red. What do you see? They found that at the outset the pile looked mostly green, but that, as the pile grew, the green became infiltrated with ever more red. With more grains, the scattering of red danger spots grew until a dense skeleton of instability ran through the pile. Here then was a clue to its peculiar behavior: a grain falling on a red spot can, by domino-like action, cause sliding at other nearby red spots. If the red network was sparse, and all trouble spots were well isolated one from the other, then a single grain could have only limited repercussions. But when the red spots come to riddle the pile, the consequences of the next grain become fiendishly unpredictable. It might trigger only a few tumblings, or it might instead set off a cataclysmic chain reaction involving millions. The sandpile seemed to have configured itself into a hypersensitive and peculiarly unstable condition in which the next falling grain could trigger a response of any size whatsoever."
John Mauldin++ makes compelling arguments, relating this to the markets behavior or the world crysis to point out that simple explanations are most often wrong and that important crysis are not triggered by any one major event by itself but in conjunction wiht the current state of instability.
"…after the pile evolves into a critical state, many grains rest just on the verge of tumbling, and these grains link up into ‘fingers of instability’ of all possible lengths. While many are short, others slice through the pile from one end to the other. So the chain reaction triggered by a single grain might lead to an avalanche of any size whatsoever, depending on whether that grain fell on a short, intermediate or long finger of instability."
"In this simplified setting of the sandpile, the power law also points to something else: the surprising conclusion that even the greatest of events have no special or exceptional causes. After all, every avalanche large or small starts out the same way, when a single grain falls and makes the pile just slightly too steep at one point. What makes one avalanche much larger than another has nothing to do with its original cause, and nothing to do with some special situation in the pile just before it starts. Rather, it has to do with the perpetually unstable organization of the critical state, which makes it always possible for the next grain to trigger an avalanche of any size."
John Mauldin++ also connects this to Hyman Minski's finding that 'stabiltiy leads to instability'. Basically, the more a system (like the economy) is stable, the more it becomes riddled with fingers of instability, prone to a major crysis.
The more comfortable we get with a given condition or trend, the longer it will persist and then when the trend fails, the more dramatic the correction.