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A Proposal for Integrating Theories of Complexity for Better Understanding Global Systemic Risks
Author(s) -
Haas Armin,
Laubichler Manfred,
Applegate Joffa,
Steudle Gesine,
Jaeger Carlo C.
Publication year - 2022
Publication title -
risk analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.972
H-Index - 130
eISSN - 1539-6924
pISSN - 0272-4332
DOI - 10.1111/risa.13608
Subject(s) - systemic risk , risk analysis (engineering) , financial crisis , complex system , global financial system , dimension (graph theory) , computer science , management science , business , economics , artificial intelligence , mathematics , pure mathematics , macroeconomics
The global financial crisis of 2008 has shown that the present financial system involves global systemic risks. The dimension of these risks is hard to grasp with the conceptual tools that have been developed to tackle conventional risks like fire or car accidents. While modern societies know quite well how to deal with conventional risks, we have not yet been equally successful at dealing with global systemic risks. For managing this kind of risks, one needs to understand critical features of specific global systems where many human agents interact in ever changing complex networks. Here we apply two specific dimensions of complexity theory for dealing with global systemic risk in an integrated fashion: normal accidents and extended evolution. Both of them have successfully been applied to the analysis of systemic risks. As a paradigmatic example of global systemic risks, we focus on the global financial crisis that began in 2008, and suggest that the future evolution of the financial system could either see a further increase in complexity, or a reversal to a less complex system. We explore and contrast the implications of normal accident theory and extended evolution perspectives and suggest a four‐point research strategy informed by complexity theory for better understanding global systemic risks in financial systems.