The behaviors of captive rhesus macaque monkeys and the banking industry both comprise complex networks, and researchers say monitoring changes in these internal networks could help banks avoid catastrophic collapses.
“Admittedly, comparing monkeys to a financial system is unconventional, however, we believe the comparison is compelling,” says Fushing Hsieh, a professor of statistics at the University of California, Davis, and lead author of the study published in the International Journal of Forecasting.
“We argue that it’s possible to detect when a crisis is likely to set in—whether in a primate social group or an industry like banking—by modeling the evolution of the breakdowns across the system’s networks,” says co-author Óscar Jordà, a UC Davis economics professor and research adviser to the Federal Reserve Bank of San Francisco.
Hsieh and Jordà teamed up with UC Davis Professor Brenda McCowan and project scientist Brianne Beisner, both of the UC Davis School of Veterinary Medicine and California National Primate Research Center at UC Davis, to compare the two network systems.
Comparing monkeys to banks
The network models, developed from data collected on the large breeding societies of rhesus macaques housed outdoors at the primate center, are intended to help understand and subsequently prevent societal collapse in these natural monkey systems.
The models were then applied, in principle, to the banking system.
The researchers first examined the power structure and significant points, or nodes, that comprise the networks in the monkey social group and applied them to comparable points and networks in the banking industry.
For example, the networks in a community of captive monkeys are based on behaviors such as mutual grooming, fighting, assisting in fights, and displaying status signals such as teeth-baring. In the banking industry, the primary activities revolve around interbank lending, loan syndication, bond-issuing services, and insurance.
It’s all about relationships
The researchers determined that the most significant activities within each system are those that influence other relationships.
In monkey society, for instance, teeth-baring and other status behaviors that signal who is the boss of whom comprise the fundamental, or keystone, network because they govern close, long-term relationships and aggression between individual monkeys.
“There may not be much teeth-baring in the banking industry, however we did determine that interbank lending would be the network in that system that is of comparable importance to subordination signaling in a monkey colony,” McCowan says.
These keystone networks are critically important because they significantly influence the stability of other relationships or networks within each respective system, she says.
The researchers propose that by examining changes in the connectivity patterns within the keystone network as well as the dependence patterns between each keystone network and its subsidiary networks, it’s possible to measure growing disturbances within the system, detect a mounting problem and intervene before it reaches a catastrophic tipping point.
The National Science Foundation and the National Institutes of Health provided funding for the study.
Source: UC Davis