Micro-foundational safety does not guarantee systemic safety

Evidence

The flaw in the logic was once again the expectation that the whole cannot be different from its component parts, that the denial of fallacies of composition haunts us once again. The neoclassical insistence on grounding everything in the micro suggested that if you make the parts safe (individual banks armed with the right risk models), then you make the whole (banking system) safe. But it turned out that the whole was quite different from the sum of its parts because the interaction of the parts produced outcomes miles away from the expectations of the instruction sheet, a sheet that was quite wrong about the world in the first place. — Mark Blyth, Austerity, 131

Categorization

• DEFINE: Explicitly names the fallacy of composition as the core methodological error of neoclassical economics.
• XREF: Generalizes the reader’s social-capital material — individual rational action producing collective outcomes no micro model predicts. — connects to: Experience-based trust in trifling risks does not scale up to high-stakes trust — Niklas Luhmann, Trust and Power, 204; Generalized trust is not necessary for social order — Russell Hardin, Trust and Trustworthiness, 806; Simple rules generate complex structures but never guarantee system self-maintenance — Niklas Luhmann, Trust and Power, 727 (+2 more)

Broader Connections

• Simple rules generate complex structures but never guarantee system self-maintenance #expands (0.85) — Niklas Luhmann, Trust and Power, 727
• Experience-based trust in trifling risks does not scale up to high-stakes trust #qualifies (0.78) — Niklas Luhmann, Trust and Power, 204
• Generalized trust is not necessary for social order #corroborates (0.74) — Russell Hardin, Trust and Trustworthiness, 806