Complexity and Endogenous Instability

Abstract

The global financial crisis proved the critical impact of the gap between individual rationality and group rationality. This gap is not supposed to arise in a Neoclassical world, but it frequently arises in a world as complex as ours. The paper explores how endogenous instability might arise due to such a gap, and what behavioral rules might help to mitigate its impact.fallacy of composition, empathy, n-person prisoner’s dilemma games, n-person zero-sum games, symmetry, the golden rule.