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Distributed Global Financial Systems for Society

Periodic Reporting for period 1 - DOLFINS (Distributed Global Financial Systems for Society)

Reporting period: 2015-03-01 to 2016-08-31

The DOLFINS project addresses the global challenge of making the financial system better serve society. It does so by placing scientific evidence and citizens’ participation at the centre of the policy process in finance. The project strives to give scientific evidence and citizens’ participation central roles in the policy process concerning finance. DOLFINS will focus on two crucial and interconnected policy areas that will shape the public debate in the coming 5 years: How to achieve financial stability and how to facilitate the long-term investments required by the transition to a more sustainable, more innovative, less unequal and greener EU economy. The expected impact is to achieve crucial advances in reshaping the policy process to overcome the financial and political crisis faced by the EU. We will deliver quantitative tools to evaluate policies aiming to tame systemic risk and to foster sustainable investment. The tools will be based on fundamental research combining network models and algorithmic game theory with broader economic insights. This approach can provide a more satisfactory understanding of credit, risk and sustainable investments in an interconnected world. We will investigate how to engage citizens in the early stage of the policy making process and will develop evidence-based narratives in order to better shape policies in the public interest. To this end, our project will take advantage of semantic web technologies, big data and ICT in general. Given the highly technical nature of key issues in finance, we will explore how ICT and art can facilitate citizens’ engagement through innovative narratives, leading to better coordinated actions of stakeholders. Overall, DOLFINS is an ambitious and yet very pragmatic project that goes at the core of what Global Systems Science is about – using ICT to provide new kinds of science-based support for policy-making in the face of complex challenges in an interconnected world. Our truly transdisciplinary consortium has the drive and the competence to deliver the targeted breakthrough via the following three measurable objectives, achievable during the life span of the project.

Objective 1. Investigate, by means of network models and algorithmic game theory, the process of endogenous money creation in financial networks: while necessary to the economy, it may create unintended distortions, systemic risk, and give banks excessive influence. Design incentives to discourage financial agents from strategically exploiting complexity, and asymmetries in information and information processing speed. Design incentives to channel funds towards long-term, socially inclusive and sustainable investments and compare possible institutional structures for this purpose.
Objective 2. Provide quantitative evaluations of policy proposals in the public debate (e.g. by means of simulations and numerical analyses), both from the point of view of systemic risk and sustainability, covering: (a) the EU banking structural reform and the G-SIFI’s, (b) the global network of pension funds (c) the EU Long-Term Financing measures and social finance (d) the international monetary system.
Objective 3. Demonstrate how we can create awareness on the role of finance in society and on the influence exerted over the policy process by the financial industry and, at least potentially, by European citizens. Demonstrate how we can engage citizens online and enable their participation in the policy making process by having a say over the management of their bank and pension savings. Investigate, through a pilot platform, what kind of ICT tools and financial instruments could facilitate the collective action of citizens to demand investments that are more in line with their societal values.
In WP1 (Policy Modeling) we have developed a research program to address several questions related to the unintended consequences of the so-called “endogenous money” and how to channel it into sustainable investments.
In WP2 we have developed frameworks to evaluate policies related to financial stability, growth and sustainability from a Global Systems Science perspective. We have focused on some of the policy issues that have recently taken centre-stage in the public discussions.
In WP3, we have applied a BigData workflow to carry out text and sentiment analysis of analyse social media content related to EU policy issues. Moreover, in a set of behavioural experiments we have shown the important of so-called social phenotypes in the interaction between users in public good games. Further, we have analysed drivers and barriers for citizens to engage in the policy cycle in particular in the context of social media. Finally, we have designed novel processes of interaction between the relevant stakeholders in the public-private projects in the social finance domain.
In terms of dissemination we have reached the scientific community by producing numerous scientific articles (33+ published, 23 working papers, 15+ in progress) and by devoting particular effort in targeting high-impact journals. We have co-organized numerous international conferences also in collaboration with policy makers.
• Money creation. We provide tools to analyse and understanding the money-creation process in the context of the complex architecture of the current financial system.

• Financial interdependences. The project provides new foundations for the analysis of systemic risk by accounting for the role of complex financial interdependencies.

• The banking structure. This project delivers a systematic and quantitative analysis from the perspective of complex networks of the various existing proposals to restructure financial markets and unlock funding from sources alternative to the banking sector.

• “Mission-oriented institutions”. We contribute to a broader theoretical and empirical understanding of the role of public finance, in particular vis-à-vis important policy debates such as the upcoming EC Long-Term Financing package.

• Pensions funds and social finance. The project investigates how to unleash the influence that stakeholders can exert on the financial system via their pension funds by providing key quantitative insights on the strategic potential of funds in social and sustainable finance.

• Large graph data from economic datasets, semantic web and sentiment analysis of policy issues. Our advance consists in developing tools to transform both data from economic datasets and from text streams related to policy issues into graph databases where economic entities can be consolidated via semantic web.

• Engaging citizens in social finance through ICT and Art. DOLFINS provides novel and actionable insights on the entire chain of the policy cycle.
Picture from Zeng and Battiston 2016.