Cars Hommes' (University of Amsterdam and Distinguished Lorentz Fellow 2014/15) co-authored article ‘Complexity Theory and Financial Regulation. Economic Policy Needs Interdisciplinary Network Analysis and Behavioral Modeling’ was recently published in Science’s insight section Policy Forum.
The article, which is authored by an international interdisciplinary group of scientists from the fields of economics and banking, ecology, epidemiology, physics, computer science and sociology argues that applications of complex networks, agent-based models and laboratory experiments offer great potential to better grasp complex financial economic systems, and that complexity theory is needed for a better understanding and management of financial-economic crises. The article came about as a result of the multidisciplinary workshop at the Lorentz Center, organised as part of the Fellowship.
Summary of the Article
Traditional economic theory could not explain, much less predict, the near collapse of the financial system and its long-lasting effects on the global economy. Since the 2008 crisis, there has been increasing interest in using ideas from complexity theory to make sense of economic and financial markets. Concepts, such as tipping points, networks, contagion, feedback, and resilience have entered the financial and regulatory lexicon, but actual use of complexity models and results remains at an early stage. Recent insights and techniques offer potential for better monitoring and management of highly interconnected economic and financial systems and, thus, may help anticipate and manage future crises.
Read more (Science: Vol. 351, Issue 6275)…