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Complexity and Endogenous Instability

Author

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  • Sami Al-Suwailem

Abstract

The global financial crisis proved the critical impact of the gap between individual rationality and group rationality. This gap is not supposed to arise in a Neoclassical world, but it frequently arises in a world as complex as ours. The paper explores how endogenous instability might arise due to such a gap, and what behavioral rules might help to mitigate its impact.

Suggested Citation

  • Sami Al-Suwailem, 2012. "Complexity and Endogenous Instability," ASSRU Discussion Papers 1203, ASSRU - Algorithmic Social Science Research Unit.
  • Handle: RePEc:trn:utwpas:1203
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    File URL: http://www.assru.economia.unitn.it/files/DP_3_2012_I.pdf
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    References listed on IDEAS

    as
    1. Smith,Vernon L., 2009. "Rationality in Economics," Cambridge Books, Cambridge University Press, number 9780521133388, October.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    4. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 183-202.
    5. Caprio, Gerard & Honohan, Patrick, 2001. "Finance for Growth: Policy Choices in a Volatile World," MPRA Paper 9929, University Library of Munich, Germany.
    6. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2005. "Thy Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers," Journal of Finance, American Finance Association, vol. 60(6), pages 2801-2824, December.
    7. John H. Nachbar, 2005. "Beliefs in Repeated Games," Econometrica, Econometric Society, vol. 73(2), pages 459-480, March.
    8. Mark D White, 2009. "Kantian Ethics and the Prisoners' Dilemma," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 35(2), pages 137-143.
    9. Markose, Sheri M & Alentorn, Amadeo & Krause, Andreas, 2004. "Dynamic Learning, Herding and Guru Effects in Networks," Economics Discussion Papers 3732, University of Essex, Department of Economics.
    10. World Bank, 2001. "Finance for Growth : Policy Choices in a Volatile World," World Bank Publications, The World Bank, number 13895, September.
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    More about this item

    Keywords

    fallacy of composition; empathy; n-person prisoner’s dilemma games; n-person zero-sum games; symmetry; the golden rule.;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises

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