Giovanni Dosi - The Survival of the Riskiest

 

Financial fragility does not fall from the sky. That's why treating risk as if it comes from exogenous shocks can't capture the reality of financial markets. 
 
In Giovanni Dosi's models, systemic risk is inherent to the financial system and is the outcome of the interactions of heterogeneous agents, who in the pursuit of short-term profit may end up driving the system towards financial abyss. Dosi investigates if and under what conditions financial innovation, like derivatives that allow for increased risk taking, exacerbates the buildup of systemic risk and moves the market to ever more fragile equilibria.