How Psychological Pitfalls Generated the Global Financial Crisis
Santa Clara University - Leavey School of Business
December 15, 2009
VOICES OF WISDOM: UNDERSTANDING THE GLOBAL FINANCIAL CRISIS, Laurence B. Siegel, ed., Research Foundation of CFA Institute, 2010
SCU Leavey School of Business Research Paper No. 10-04
The root cause of the financial crisis that erupted in 2008 is psychological. In the events which led up to the crisis, heuristics, biases, and framing effects strongly influenced the judgments and decisions of financial firms, rating agencies, elected officials, government regulators, and institutional investors. Examples involving UBS, Merrill Lynch, Citigroup, Standard & Poor’s, the SEC, and end investors illustrate this point. Among the many lessons to be learned from the crisis is the importance of focusing on the behavioral aspects of organizational process.
Number of Pages in PDF File: 44
Keywords: Financial Crisis, Behavioral Finance, Government Regulation
JEL Classification: G00, G18, G28, G20, G38
Date posted: December 18, 2009
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