Financial instability often results from positive feedback loops intrinsic to the operation of the financial system. The challenging task of identifying, modeling, and analyzing the causes and effects of such feedback loops requires a proper systems engineering perspective lacking in the...

This article describes the agent-based approach to modeling financial crises. It focuses on the interactions of agents and on how these interactions feed back to change the financial environment. It explains how these models embody the contagion and cascades that occur owing to the financial...