Adaptive and Rational Anticipations in Risk Management Systems and Economy

The global financial crisis of year 2009 is explained as a result of uncoordinated risk management decisions in business firms and economic organisations. The underlying reason for this can be found in the current financial system. As the financial market has lost much of its direct coupling to the concrete economy it provides misleading information to economic decision makers at all levels. Hence, the financial system has moved from a state of moderate and slow cyclical fluctuations into a state of fast and chaotic ones. Those misleading decisions can further be described, but not explained, by help of adaptive and rational expectations from macroeconomic theory. In this context, AE, the Adaptive Expectations are related to weak passive Exo-anticipation, and RE, the Rational expectations can be related to a strong, active and design oriented anticipation. The shortcomings of conventional cures, which builds on a reactive paradigm, have already been demonstrated in economic literature and are here further underlined by help of Ashby's “Law of Requisite Variety”, Weaver's distinction between systems of “Disorganized Complexity” and those of “Organized Complexity”, and Klir's “Reconstructability Analysis”. Anticipatory decision-making is hence here proposed as a replacement to current expectation based and passive risk management. An anticipatory model of the business cycle is presented for supporting that proposition. The model, which is an extension of the Kaldor-Kalecki model, includes both retardation and anticipation. While cybernetics with the feedback process in control system deals with an explicit goal or purpose given to a system, the anticipatory system discussed here deals with a behaviour for which the future state of the system is built by the system itself, without explicit goal. A system with weak anticipation is based on a predictive model of the system, while a system with strong anticipation builds its own future by itself. Numerical simulations on computer confirm the feasibility of this approach. Hence, functional differential equations with both retardation and anticipation are found to be useful tools for modelling financial systems.