Lars Peter Hansen: How to Navigate in the Mist of Uncertainties

2018-06-28

On June 14th, 2018, “Lujiazui Forum - SAIF Night: Financial Reform and Risk Prevention under Economic Globalization" was jointly hosted by Shanghai Advanced Institute of Finance (SAIF) and CBN Research Institute. It greeted Prof. Lars Peter Hansen, Nobel Laureate in Economics in 2013 and Professor of Economics at the University of Chicago. Prof. Hansen gave a speech on the multiple factors of uncertainties, the complexity of statistics, the rational expectations theory in economic models, and the practical significance of uncertainty to climate change and financial market regulation.

Panel discussants included: Dr. Yang Li, Chairman of the National Financial Development Laboratory; Dr. Chenghui Zhang, former Director of the Financial Research Institute of the Development Research Center of the State Council; Prof. Chun Chang, Executive Dean and Professor of Finance at SAIF; Dr. Z Yudong Yao, Chief Economist of Dacheng Fund; and Prof. Jianping Ding, Director of the Center for Modern Finance Research at Shanghai University of Finance and Economics. They discussed financial reforms and risk prevention under economic globalization with Prof. Hansen.

According to Prof. Hansen, although financial market regulation is a complex issue, a complete set of complex solutions might be unnecessary, “because we have to admit that our understanding of financial markets and macroeconomics is limited. We blindly pursue complex solutions, while, in some cases, simple policies can help us avoid uncertainty.” He suggested that different models can be compared to find potential alternatives. In addition, simple and prudent policies should be adopted because they can avoid increasing uncertainty in an economic environment and perform well in different models. "The economy itself is already complicated. If we adopt complex policies, it will lead to more uncertainties. Moreover, many policies have room for self-discretion, which will add further uncertainties."