And rather than solve a complex inter-temporal trade-off, monetary policy in practice seems to mimic simple rules of thumb (Taylor (2016)). Some would interpret these simple decision rules as irrational, in the sense of being inconsistent with the Euler condition from standard macro-models. But even the concept of rationally needs careful reconsideration in an environment of radical uncertainty. Rationality can only be defined in relation to the environment in which decisions are made – what some have called ecological rationality (Gigerenzer (2014)). Heuristics can be the ecologically-rational response to radical uncertainty. In ABMs, the behaviour of agents is characterised, not by Euler conditions, but by behavioural rules of thumb. These systems also exhibit radical uncertainty. That means there is a degree of model-consistency in ABMs – heuristics and uncertainty are mutually consistent. In that sense, the behavioural rules embedded in ABMs are neither as irrational, nor as prone to the Lucas critique, as some critics might imply. (c) Non-Normal Behaviour  In many standard models, the equilibrium of the system is both singular and stationary. There is a natural and unique state of rest towards which the model converges following a disturbance. Wicksell’s rocking horse is not a perpetual motion machine and nor does it turn somersaults. While many models of multiple equilibria exist in economics and finance, they tend to occupy the suburbs rather than the city-centre of the profession. In ABMs, the equilibria which emerge are often non-stationary or multiple, sometimes both.
Timothy F Geithner: The current financial challenges – policy and regulatory implications Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Council on Foreign Relations Corporate Conference 2008, New York, 6 March 2008. *  *  *  I am going to talk today about some of the challenges facing the U.S. and financial system. These problems took a long time to build up, and, even with a forceful mix of public policy and action by the private sector, they will take time to resolve. The central questions are: what caused the crisis and what explains its severity? What mix of policy measures will best contain the damage? And what changes to the financial system are likely to produce greater stability and resilience in the future? Origins The origins of this crisis lie in complex interaction of number of forces. Some were the product of market forces. Some were the product of market failures. Some were the result of incentives created by policy and regulation. Some of these were evident at the time, others are apparent only with the benefit of hindsight. Together they produced a substantial financial boom on a global scale. In the five years leading up to the present stress, the world experienced an unusual mix of financial conditions.