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The Anatomy of Systemic Financial Risk: Combining Ethical, Political and Economic Dimensions for Public Policy

English title The Anatomy of Systemic Financial Risk: Combining Ethical, Political and Economic Dimensions for Public Policy
Applicant Cheneval Francis
Number 162776
Funding scheme Interdisciplinary projects
Research institution Philosophisches Seminar Universität Zürich
Institution of higher education University of Zurich - ZH
Main discipline Philosophy
Start/End 01.02.2016 - 31.01.2020
Approved amount 821'568.00
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All Disciplines (3)

Discipline
Philosophy
Economics
Political science

Keywords (8)

public policy; financial regulation; financial risk; ethics; justice; ethics of risk; systemic risk; moral contractualism

Lay Summary (German)

Lead
Im Projekt „Anatomie systemischer Finanzrisiken“ entwickeln Ökonomen, Komplexitätsforscher, Philosophen und Politikwissenschaftler in interdisziplinärer Kollaboration innovative Ansätze für die bessere empirische Vorhersagbarkeit, ethische Bewertung, und politische Regulierung von systemischen Finanzmarktrisiken.
Lay summary

Wie die Ereignisse von 2008 anschaulich bewiesen haben, können Finanzkrisen eine signifikante Gefahr für gesellschaftlichen Wohlstand und sozialen Frieden sein. Systemische Finanzmarktrisiken sind solche Risiken, die nicht bloß spezielle Finanzmarktinstitutionen (Banken, Fondgesellschaften) zum kollabieren bringen können, sondern den Markt als solchen bedrohen und daher das Potential für besonders gravierenden gesamtgesellschaftlichen Schaden aufweisen. Systemische Finanzmarktereignisse sind nur schwer voraussagbar, und ihre ethischen und gesellschaftlichen Folgen sind bisher wenig detailliert analysiert worden. Das Projekt verfolgt daher drei konkrete Ziele: Ein erstes, empirisches Unterprojekt hat das Ziel, komplexere Computersimulationen und präzisere Indikatoren für systemische Finanzmarktrisiken zu entwickeln. Ein zweites, philosophisches Unterprojekt erarbeitet neue ethische Kriterien auf Basis des moralischen Kontraktualismus zur Bewertung verschiedener systemischer Finanzmarktrisiken. Ein drittes, von allen Forschern gemeinsam verfolgtes Ziel, ist die Erarbeitung von konkreten Politikvorschlägen für eine verbesserte Finanzmarktregulierung.

Direct link to Lay Summary Last update: 22.01.2016

Responsible applicant and co-applicants

Employees

Publications

Publication
Special Issue "Social Norm and Risk Attitudes"
NaxHeinrich, ViehoffJuri (2019), Special Issue "Social Norm and Risk Attitudes", MDPI AG, Basel.
How learning can change the course of evolution
Aguilar Leonel, Bennati Stefano, Helbing Dirk (2019), How learning can change the course of evolution, in PLOS ONE, 14(9), e0219502-e0219502.
Towards Digital EnlightenmentEssays on the Dark and Light Sides of the Digital Revolution
Nagler Jan, van den Hoven Jeroen, Helbing Dirk (2019), Towards Digital EnlightenmentEssays on the Dark and Light Sides of the Digital Revolution, Springer International Publishing, Cham.
Mass evacuation simulation considering detailed models: behavioral profiles, environmental effects, and mixed-mode evacuation
Aguilar Leonel, Wijerathne Lalith, Jacob Stephen, Hori Muneo, Ichimura Tsuyoshi (2019), Mass evacuation simulation considering detailed models: behavioral profiles, environmental effects, and mixed-mode evacuation, in Asia Pacific Management Review, 24(2), 114-123.
Latent Mobility Pattern Estimation in the Migration Game
Takeuchi Shun, Aguilar Leonel (2019), Latent Mobility Pattern Estimation in the Migration Game, in ICGDA 2019: 2019 2nd International Conference on Geoinformatics and Data Analysis & 2019 2nd Interna, Prague Czech RepublicACM Digital Library, New York.
Eurozone Justice
Viehoff Juri (2018), Eurozone Justice, in Journal of Political Philosophy, 26(3), 388-414.
Addressing the Diversity of Risks and Accounting for Systemic Risks
BieberFriedemann (2018), Addressing the Diversity of Risks and Accounting for Systemic Risks, in Ethical Perspectives, 25(3), 363-390.
Topological enslavement in evolutionary games on correlated multiplex networks
Kleineberg Kaj-Kolja, Helbing Dirk (2018), Topological enslavement in evolutionary games on correlated multiplex networks, in New Journal of Physics, 20(5), 053030-053030.
Option-implied objective measures of market risk
Leiss Matthias, Nax Heinrich H. (2018), Option-implied objective measures of market risk, in Journal of Banking & Finance, 88, 241-249.
Unfair and Anomalous Evolutionary Dynamics from Fluctuating Payoffs
Stollmeier Frank, Nagler Jan (2018), Unfair and Anomalous Evolutionary Dynamics from Fluctuating Payoffs, in Physical Review Letters, 120(5), 058101-058101.
The Ethical Challenge of Systemic Financial Distrust
BieberFriedemann, ViehoffJuri (2018), The Ethical Challenge of Systemic Financial Distrust, in Finance and the Common Good , 44/45(1), 35-49.
Ethics for Times of Crisis
Nagler Jan, van den Hoven Jeroen, Helbing Dirk (2018), Ethics for Times of Crisis, in SSRN Electronic Journal, 1-5.
Actuarial Sciences and Quantitative Finance
Leiss Matthias, Nax Heinrich H. (2017), Actuarial Sciences and Quantitative Finance, Springer International Publishing, Cham.
Introduction: Normative dimensions of the European crisis
Ronzoni Miriam, Viehoff Juri (2017), Introduction: Normative dimensions of the European crisis, in European Journal of Political Theory, 16(2), 139-142.
Special issue: Normative dimensions of the European crisis
RonzoniMiriam, ViehoffJuri (2017), Special issue: Normative dimensions of the European crisis, Sage Publications, London.
Fairness and Risk-Sharing in Transnational Monetary Governance
ViehoffJuri (2017), Fairness and Risk-Sharing in Transnational Monetary Governance, in SSRN Electronic Journal, 1-31.
Parfit und die Relevanztheorie von Schäden
ViehoffJuri (2017), Parfit und die Relevanztheorie von Schäden, 1-25, SSRN, New York1-25.

Collaboration

Group / person Country
Types of collaboration
Humboldt University, Integr. Transformations of Human-Envr. Systems, (Prof. Dr. Wollner) Germany (Europe)
- in-depth/constructive exchanges on approaches, methods or results
ETH Zurich, Computational SocSc, Group focusing on epidemiology and networks (Dr. Woolley-Meza) Switzerland (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication
- Research Infrastructure
London School of Economics, Prof. Richard Bradley Great Britain and Northern Ireland (Europe)
- in-depth/constructive exchanges on approaches, methods or results

Scientific events



Self-organised

Title Date Place
Social Risk and (Dis)trust 13.12.2018 Zürich, Switzerland
Summer School in Systemic Risk 15.06.2017 Coldrano, Italy

Awards

Title Year
Ethics & Trust in Finance – Global Prize 2017

Associated projects

Number Title Start Funding scheme
170226 FuturICT 2.0 - Large scale experiments and simulations for the second generation of FuturICT 01.02.2017 FLAG-ERA

Abstract

The envisaged research project will investigate systemic financial risk (SFR) from the perspectives of economics, political science and ethics. Its central goal consists in deepening our understanding of SFR in ways that are of use for public-policy makers, in particular as regards the regulation of financial markets. To do so, the project brings together experts in economics, finance, political science/political economy and ethics from the University of Zurich’s Center for Ethics and its Institute for Political Science, the ETH Risk Center and the ETH Department of Humanities, Social and Political Sciences.The phenomenon of financial risk poses complex challenges of imminent importance to public policy makers - challenges that require sophisticated and sustained interdisciplinary cooperation. Due to the recent financial crisis, systemic risk has received considerable attention in various fields. In economics, the topic is approached through inquiry into the nature and determinants of financial bubbles. In political economy, the question how authoritative public regulation may reduce SFR without unduly restricting economic growth has taken center stage. Moral and political philosophers, in turn, have begun to investigate the previously neglected topic of risk ethics, and in particular the ethics of systemic risk as evidenced by such phenomena as global climate change or liberalized financial markets. The project as a whole pursues four overarching goals: The first goal is to conceptualize the idea of SFR. The second is to improve our understanding of the causal pathways through which SFRs take shape. The third is to explore the ethical foundations of regulating SFRs. Only once these three foundational elements are in place can the fourth goal, the most pragmatic and pressing one, be addressed: This goal consists in working towards regulative solutions to the problem of SFR which are both empirically robust and ethically sound.Although significant inroads have been made to address SFR, one obstacle has been a lack of clarity when it comes to defining systemic risk. Therefore, the first task of this research project consists in delineating a conception of SFR that is theoretically and philosophically sound and can be employed across different disciplines and contexts. Developing such a conceptual framework will need to draw on literature in physical science and complexity study, the study of political economy, but also on philosophical analyses. The benefits of advancing and refining the typology of SFR will enable researchers inquiring into any kind of systemic risk issue to differentiate more thoroughly and to communicate more effectively with those working on other forms of risk. The second goal of the project is to improve our empirical understanding of the factors that collectively determine the level of SFR. An analysis of the causal determinants is necessary to make any normative approach relevant for actual regulatory decision-making. Two aspects seem especially pertinent here: First, classifying the kinds of actors and institutions that contribute to SFR. It is, after all, to these institutions that adequate regulatory solutions must be addressed. Second, developing reliable indicators of the level of systemic fragility that prevail in the financial market at any given time. A key feature of SFR is that perceptions of systemic relevance are crucial because they generate feedback loops and give rise to considerable complexity. Our team of experienced researchers will apply some of the models and methods they have developed for other social systems in new ways to financial markets. This method, in combination with detailed assessment of recent macro-prudential regulatory approaches in political economy, offers a novel approach to determining which institutions are systemically relevant and how they may be regulated.The third part of the research project studies the ethical difficulties that SFR gives rise to, i.e. what kinds and which levels of SFR are ethically defensible? We depart from the assumption that any convincing response must include morally relevant actors beyond outcomes measured in aggregate (economic) welfare. Even if we abstract away from the specific issue of systemic risk exposure, there is currently no convincing ethical theory that offers such an account. The approach that we consider most promising is a form of moral contractualism: such an approach can coherently account for some of the core non-consequentialist intuitions about SFR. We argue that this approach yields a principle of collective due care, according to which agents who have a high impact on systemic financial stability bear special responsibility to ensure the innocuousness of their current products and practices. Thus, the philosophical aim of this project workstream is (i) to formulate and defend a plausible contractualist ethics of SFR, and (ii) to work out the way in which it can help to guide public policy choices.
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