Intellectual Hazard: How Conceptual Biases in Complex Organizations Contributed to the Crisis of 2008

40 Pages Posted: 4 Nov 2009  

Geoffrey P. Miller

New York University School of Law

Gerald Rosenfeld

New York University School of Law; New York University (NYU) - Department of Finance

Date Written: November 4, 2009

Abstract

This paper identifies an important but previously unrecognized systemic risk in financial markets: intellectual hazard. Intellectual hazard, as we define it, is the tendency of behavioral biases to interfere with accurate thought and analysis within complex organizations. Intellectual hazard impairs the acquisition, analysis, communication and implementation of information within an organization and the communication of such information between an organization and external parties. We argue that intellectual hazard was a cause of the Crisis of 2008 and suggest that this risk may be an important factor in all financial crises. We offer tentative suggestions for reforms that might mitigate intellectual hazard going forward.

Suggested Citation

Miller, Geoffrey P. and Rosenfeld, Gerald, Intellectual Hazard: How Conceptual Biases in Complex Organizations Contributed to the Crisis of 2008 (November 4, 2009). NYU Law and Economics Research Paper No. 09-43. Available at SSRN: https://ssrn.com/abstract=1499789 or http://dx.doi.org/10.2139/ssrn.1499789

Geoffrey P. Miller (Contact Author)

New York University School of Law ( email )

Center for the Study of Central Banks
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6329 (Phone)
212-995-4590 (Fax)

Gerald Rosenfeld

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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