An Evolutionary Theory of Systemic Risk and its Mitigation Outlined for the Global Financial System

Abstract:     
A theory of systemic risk is outlined for the global financial system, with practical implications for systemic risk mitigation, based on evolutionary economics viewed from an operational behaviour perspective. The paper begins with an introduction to systemic crises and what motivates this contribution, followed by an explanation of the theory development approach taken. Then a critical review of the main themes in relevant literature leads to a proposed gap in theory. The scope of extant theories is argued to be limited to perceived causes and effects of specific events from the past, with few general insights for recognizing, avoiding and responding to potential failures of this system, wherever they may emerge in the future. After declaring theoretical foundations, new conjectures and propositions from a current programme of research are presented to address that gap and outline a general theory, introducing multidisciplinary notions in a cusp catastrophe-type model of systemic failure.

Number of Pages in PDF File: 45

Keywords: Systemic risk, systemic failure, risk mitigation, evolutionary economics, economic theory, computational economics, global financial system, operational behaviour, operational paradigm, cusp catastrophe

Accepted Paper Series