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When making decisions under risk, people often exhibit behaviors that classical economic theories cannot explain. Newer models that attempt to account for these irrational behaviors often lack neuroscience bases and require the introduction…

We present a simple agent-based model to study the development of a bubble and the consequential crash and investigate how their proximate triggering factor might relate to their fundamental mechanism, and vice versa. Our agents invest…

Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…

Systemic risk measures have been shown to be predictive of financial crises and declines in real activity. Thus, forecasting them is of major importance in finance and economics. In this paper, we propose a new forecasting method for…

We analyze a simple macroeconomic model where rational inflation expectations is replaced by a boundedly rational, and genuinely sticky, response to changes in the actual inflation rate. The stickiness is introduced in a novel way using a…

We discuss the feasibility of predicting, managing and subsequently manipulating, the future evolution of a Complex Adaptive System. Our archetypal system mimics a population of adaptive, interacting objects, such as those arising in the…

A simple quantitative example of a reflexive feedback process and the resulting price dynamics after an exogenous price shock to a financial network is presented. Furthermore, an outline of a theory that connects financial reflexivity,…

In the context of understanding the nature of the risk transformation process of the financial system we propose an iterative risk-trading game between several agents who build their trading strategies based on a general utility setting.…

Financial markets are complex adaptive systems characterized by collective behavior and abrupt regime shifts, particularly during crises. This paper studies time-varying dependencies in Nordic equity markets and examines whether…

Clinical decision-making is a feedback system where risk estimates influence treatment, which in turn changes disease trajectories, and both shape clinicians' measurement practices. Static prediction often fails clinically: models trained…

Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…

We develop a systemic risk framework to explore cascading systemic failures in networked control systems. A time-delayed version of the vehicle platooning problem is used as a benchmark to study the interplay among network connectivity,…

We present a simple agent-based model of a financial system composed of leveraged investors such as banks that invest in stocks and manage their risk using a Value-at-Risk constraint, based on historical observations of asset prices. The…

Using the mechanics of creep in material sciences as a metaphor, we present a general framework to understand the evolution of financial, economic and social systems and to construct scenarios for the future. In a nutshell, highly…

We consider a random financial network with a large number of agents. The agents connect through credit instruments borrowed from each other or through direct lending, and these create the liabilities. The settlement of the debts of various…

We study how the phenomenon of contagion can take place in the network of the world's stock exchanges due to the behavioral trait "blindeness to small changes". On large scale individual, the delay in the collective response may…

This work proposes an augmented variant of DebtRank with uncertainty intervals as a method to investigate and assess systemic risk in financial networks, in a context of incomplete data. The algorithm is tested against a default contagion…

We study the dynamics of correlation and variance in systems under the load of environmental factors. A universal effect in ensembles of similar systems under the load of similar factors is described: in crisis, typically, even before…

Self-adjusting, or adaptive systems have gathered much recent interest. We present a model for self-adjusting systems which treats the control parameters of the system as slowly varying, rather than constant. The dynamics of these…

Agent-based models provide a constructive approach to studying emergent dynamics in life-like systems composed of interacting, adaptive agents. Financial markets serve as a canonical example of such systems, where collective price dynamics…