Wargaming Financial Crises: The Problem of (In)Experience and Regulator Expertise

Abstract

A comprehensive approach to minimizing the long-term costs of financial crises must include efforts to train regulators to respond effectively to crisis dynamics when they arise. An important gap exists, however, in our current approach: a uniquely effective building block for developing crisis-fighting skills is relevant experience, but the infrequency of crises translates to a dearth of opportunities for regulators to attain the necessary experience and develop the pertinent skills. This Article proposes to fill this gap by employing role-playing crisis simulations – or wargames – to create synthetic crisis-fighting experiences. Wargames can provide regulators with a repertoire of crisis experiences that they will have “lived,” in a real if attenuated way, which can then aid them in perceiving key patterns and anomalies and in anticipating potential consequences of decisions to intervene (or not) under the intense time pressure and stress of an actual crisis.

Keywords: Financial Crisis, Financial Regulation, Crisis Simulation, Wargames