Fellow Cars Hommes’ (University of Amsterdam) 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 (Science: Vol. 351, Issue 6275). In this section issues related to the intersections between science and society that have policy implications are presented.
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.
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.
About Cars Hommes
Cars Hommes is especially known for his fundamental and influential work with William Brock (University of Wisconsin, United States) on building a new behavioral heterogeneous expectations paradigm. The work of Hommes and his research group Center for Nonlinear Dynamics in Economics and Finance (CeNDEF, he founded 15 years ago by a Pioneer-grant from NWO) sets global standards. Since 2002, Cars Hommes is one of the editors of the Journal of Economic Dynamics and Control, and is on the editorial boards of Macroeconomic Dynamics, Journal of Nonlinear Science, Computational Economics, Journal of Economic Behavior & Organization and the Journal of Economic Interaction and Coordination. He has published in journals such as Econometrica, Review of Financial Studies, and the Journal of Mathematical Economics. Hommes is the leader of the TI research group Cooperative Behaviour, Strategic Interaction and Complex Systems (CSC).