The ultimate goal of the CRISIS project is to develop software that will help central banks and governments manage their economics through the current fragile environment and hopefully make it easier to predict the emergence of future crises and so mitigate their impact.
This will involve building a new model that is more capable of dealing with the complex features of economies, financial markets and how two interact with each other in practice rather than in theory.
At the heart of this innovation is the idea that the agents within the groups used in traditional models – households, firms, banks and policymakers – behave differently from each other based on their own characteristics, and that they do not always behave “rationally”.
The model will based on new inputs from human experiments, other disciplines, greater computer power, and publicly available online games as well as on existing models. It will include innovative features:
- In order to develop greater understanding of how people and institutions behave, CRISIS is carrying out experiments with real people to understand how they behave in both the macroeconomic and financial context. By taking the roles of consumers and firms CRISIS can observer how people’s behaviour changes as they interact.
- We will exploit the sophisticated computers and software that are currently used in fields such as weather forecasting, traffic control and predicting the spread of epidemics – but which have not been fully exploited by economists.
- CRISIS will also make use of knowledge from other disciplines including physics, mathematics and computer science. A good example is statistical physics that studies interactions between billions of particles. The concept can be carried over to economics where particles – or agents – interact.
- CRISIS will put online an online game that anybody can join in from home to take the role of a family, a firm, a bank or a policymaker. The data generated will enable to understand better how agents interact and make decisions.
If we succeed, then in a not too distant future we may be able to deal with – and perhaps even predict – an economic crisis. It will help policymakers set up early warning systems that will minimize the impact of other possible crises.