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Comment by greendestiny | Hacker News Reader

I think your last sentence is most telling. Neither the free agents trading in the market nor the regulators would have continued as they did if they knew what would happen. The answer is to understand and then set up more diverse, failure tolerant economies.

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That's an emergent property of the system (which emerges or not) so how are you going to engineer that?

And how would you do that? what would make the economy more fault tolerant, specifically?

The same way you do it with computers: avoid central control. Central control is fragile, non scaleable (and promotes corruption when human beings are involved).

Self-fulfilling rumours which trigger bank runs can be a distributed phenomena, no one person needs to engineer it. It just needs to start somehow.

More importantly, it is possible that most people are wrong on some particular question about a market. If so, a sudden discovery of the truth by the mainstream might lead to a desertion of this market.

  Self-fulfilling rumours which trigger bank runs can be a distributed phenomena

If we were to get rid of the physical token of our monetary value, it would be impossible for a run in one bank to negatively effect all of them. After all, an electronic 'withdrawal' has to go somewhere.

I really don't know. The stock market is somewhat balanced by bonds (and short selling?) in that they are alternative positions for people to go into in order to profit from changing conditions - but there doesn't seem to have been much of a way for the market position itself relative to credit becoming more expensive. I guess at the really abstract level you want independent agents to balance each other such that the sum of their positions resistant to change rather than reinforcing each other so they can all fail at once.

Rather than trying to dictate/engineer a "fault tolerant" economy, I suggest thinking more along the lines of "what simple mechanisms can be put in place in how the system functions so that participants in the markets/economies can make better decisions?"

Two things that I think are critical: * true transparency (e.g., look at the CDS fiasco ("look, it's insurance but it's not!" and the complete lack of reporting) * rate limiters (e.g., look at how much the recent volatility is due to the frantic rushing around, the reaction to all of that franticness, etc. For the physics enthusiasts in the crowd think of the propagation of supernovae through a given volume of a galaxy)

They are exactly the kind of steps I think make an economy "fault tolerant" - don't read too much into my choice of words there.

answer?

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