Wednesday, July 22, 2009

Psychology of Overconfidence

Since the beginning of the financial crisis, there have been two principal explanations for why so many banks made such disastrous decisions. The first is structural. Regulators did not regulate. Institutions failed to function as they should. Rules and guidelines were either inadequate or ignored. The second explanation is that Wall Street was incompetent, that the traders and investors didn’t know enough, that they made extravagant bets without understanding the consequences. But the first wave of postmortems on the crash suggests a third possibility: that the roots of Wall Street’s crisis were not structural or cognitive so much as they were psychological.

Read the rest of Malcolm Gladwell's article in The New Yorker.

1 comment:

Ben said...

So true.. here is a youtube video that you may find interesting, it explains the psychology of over confidence. enjoy!