A Game Theoretic Approach to Assessing the Causes of the Financial Crisis and the Extent to Which a Global Financial Regulatory Organization May Be Necessary to Resolve the Issues and Lasting Impact of the 2007–9 Financial Crisis?

Abstract

The Domino Causal Theory in this paper takes a game theoretic approach to assessing the causes of the financial crisis of 2007-9. The paper assesses the relationship between the causal contributors highlighted at each stage and uses descriptive game theory to determine whether the impact of the 2007-09 crisis could have been resolved. The paper focuses on the causes of the crisis based on the pre-crisis events that occurred in the UK and US and as such the concept of a Global Financial Regulation Organisation as a resolution to prevailing financial regulation failures is limited to the critical analysis of these two jurisdictions. The Domino Causal Theory developed by the author derives from descriptive models of Game Theory. The domino causal theory categorizes the causes of the crisis into four stages 1) regulatory failures 2) Market failures 3) The failure of Non-Governmental Organisation 4) Depositor panic. At each stage the author will critically assess the failures that occurred prior to the crisis, it determines whether they have been resolved and whether these failures support the need for a GFRO capable of mitigating the occurrence of another crisis.

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