What's our Time Frame

I have noticed over a period of time that Economists usually ignore the role that societal learning plays in economics.  Let me give the most germane example of which I can think.  Imagine a crisis occurs.  The crisis could be anything for the general nature of this question but let's take it as a specific type of economic crisis for the purpose of this argument.  How about a banking crisis precipitated by excessive leveraging in an economy?  How's that for topical?  The causes of such a crisis are somewhat controversial but generally they share some traits.  A few are: irrational exuberance, excessive borrowing, over investment, and insufficient risk management on the part of just about everyone.  I don't think that this is too controversial so I am going to assume you agree with me so far.  My question isn't about the causes of the crisis anyway, it's about the result.  I am not concerned with the immediate result (unemployment, recession, deleveraging) but about the long term impact on the decisions and thought processes of the society.

We can imagine various different worlds.  The two extremes would be: one, that we would forget such a crisis immediately after it happened and two, that we would remember such a crisis, forever, as if it had just happened.  Obviously the truth is somewhere in between but let's think about the two worlds.  In the first, nothing would change as a result of the crisis.  There would be no behavioral change, no policy response, and no decrease in risk taking.  In the second, changes would be more or less permanent.  The changes might be tweaked to improve them but the immediacy of the crisis in the minds of people and policy makers would make the change in mindset remain.

The actual affect is somewhere in the middle.  Behavior changes due to a crisis for a period of time.  It seems intuitive to me that this change would be correlated to the length and severity of the crisis but I can't prove it empirically (if you are aware of research on this please let me know).  Generally people become more risk adverse for a period of time. Less borrowing and more conservative investment decisions driven by risk aversion will make a future crisis less likely.

So if we can accept that crises affect risk appetite and risk appetite affects crises then it seems very important to understand how this relationship works.  Specifically: how long does behavior change, how does the severity of the crisis affect the degree to which behavior changes and the length of time it changes, and, do frequent low impact crises affect society differently than infrequent high impact crises?  These questions matter because policy makers have made decisions which have drastically changed the structure of the business cycle.

Adam Smith argues that there are many natural tendencies of the market which serve to correct man's many foibles and that when government interferes with man's natural liberty it distorts these corrections.  We can imagine that this extends to the timing of bubbles and manias and the crashes that subsequently follow them.  When central banks and governments act to forestall a crisis, through monetary or fiscal intervention, they change the length of time between crises and the severity of crises when they happen.  This changes the way society experiences the crisis and therefore what we learn from the crisis.  But we don't know exactly how, what, and for how long, we learn from these events so we don't know the actual impact of the intervention.