As evidence continues to mount that established models of rational decision-making are dangerously out of date, behavioral science has embraced human irrationality in all of its deceptively predictable forms. At the forefront of the field is Duke University professor Dan Ariely, whose simple experiments into human bias have shed light on everything from the fallacy of supply and demand to the problem of procrastination.

Churchill argued that democracy is the worst form of government, except for all the others. With capitalism now falling under similar fire, modern politicians, businesspeople and academics are once again questioning both the failures of free markets and the failures of government. As pundits gather on either side of the debate — casting blame and contempt across the regulatory divide — one often overlooked explanation for all the recent chaos is the time-honored tendency for human society to self-destruct. Behavioral economists and psychologists are having a field day watching our worst decision-making biases play themselves out in political and capital markets.

Mr. Dollar testified before the Financial Crisis Inquiry Commission today about the challenges of a self-regulating market and the dangers that lie ahead. While his belief in free market capitalism remains unshaken, Greenspan’s warnings about the key attributes that should underpin a stable banking system — adequate capitalization, liquidity, and regulatory oversight — cast a surprising shot across the bow of modern banking giants who have grown a little too comfortable with their bailout blanket and artificially low interest rates.

From daily solar cycles to quarterly seasonal changes to the 130,000-year lapse between Ice Ages, our world is filled with natural ebbs and flows. Those that try to forecast the future by studying these longer sweeping patterns are often accused of being out of touch, relying on the distant past for established wisdom rather than embracing contemporary optimism that “this time is different“. In this essay in Foreign Affairs, Niall Ferguson reminds us that America is just as vulnerable to collapse as the many great civilizations that preceded it — maybe even more so given the increasing complexity of our modern global economy…

As ideological battles are waged over the benefits of free markets, the challenges of financial regulation, the inefficiency of policymaking, and the design of a sustainable path forward, pundits often attack one another without a fundamental understanding of the mechanics of our modern financial system. This primer helps to explain the unique roles that banks and capital markets play in the efficient (and sometimes painfully inefficient) functioning of of modern society. While it won’t settle any debates, it certainly reminds us how little we may know about the way the economy works…

“Zapatero is not a good driver. It’s like a boat, which in calm waters steers fine, but when it gets bumpy, they are not prepared.” The same could be said for many of the world’s C-level leaders, so it’s perhaps not surprising that both companies and countries are finding out the hard way that credit can dry up when the sea gets choppy…