Financial instability

Instability in the economy seems to be the zeitgeist of the week.


Science Daily has a story on a mathematical model of extinction. Apparently a key finding is that the most effective interventions in the model when a species declines are counter-intuitive.  An analogy: brakes don’t stop you when you are driving in snow, even though you expect them to.

As we saw last week in Sunshine and Vegas there is a connection between finance and ecology.  Finance is certainly not immune to counter-intuitive effects.  Robert Peston wrote about the possibility of rules for mega banks backfiring. The argument is that if the very largest banks are forced to hold additional capital to counteract their disproportionate impact on systemic risk, then they could be perceived as safer and hence get even more business.

On a related subject, this week’s New Scientist has an article called “The Cassandra factor” about predicting catastrophes.  The on-line version is called Prophets of doom. The article points out that there is the possibility that the techniques won’t work in finance (for long) because the system will adapt to them.


The Browser has an interview with Robert Shiller. He focuses on social inequality, claiming that is one of the causes of financial instability.  The interview is centered around a selection of 5 books that Shiller made.  One of the five books is Nudge.

You can see a one-hour lecture about Nudge in Richard Thaler rethinks regulation. In the first third he talks about economics, including giving some examples of how the Efficient Market Hypothesis fails.  He talks about the book in the remaining time.


On the more whimsical end of the discussion about financial instability, Swimming Against the Mainstream gives us The Krugman.

The original is The Raven by Edgar Allan Poe.

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