Financial ecosystems can be vulnerable too

Ecology is a young subject, and one that has made a significant contribution to growing interest in academic studies of “complex systems”. The word ecology itself was coined just over a century ago. Early attempts to provide a conceptual foundation for the subject invoked romantic ideas about “the balance of nature” and, on this basis, for example, the influential ecologist Evelyn Hutchinson suggested that the large population fluctuations “observed in arctic and boreal fauna may be due in part to the communities not being sufficiently complex to damp out oscillations”.

More careful examination of these ideas has, however, shown that in general, greater complexity – more species and more interactions among them – tends to make the system more vulnerable to environmental shocks (the so-called May-Wigner Theorem). Insofar as a general statement can be made, it is that stressful environments tend to be associated with simple, not complex, ecosystems. Commuters to Wall Street can see this daily as their train passes vast monocultures of Spartina alterniflora, naturally flourishing in the highly-stressed marshlands of New Jersey. Conversely, complex and species-rich communities flourishing in relatively predictable environments are often severely disrupted by the introduction of alien species: witness the cane toad in Australia or the water hyacinth in the UK’s Norfolk Broads. This has relevance beyond my field of ecology – not least for finance and banking.

Read more: http://www.ft.com/intl/cms/s/0/a6ee48b4-0d63-11e2-99a1-00144feabdc0.html#axzz29vq1p2nB