Nassim Nicholas Taleb (author of Fooled by Randomness and The Black Swan) co-wrote a paper with George Martin that appears in the SAIS Review of International Affairs vol XXXII no. 1 (Winter-Spring 2012).
This article argues that the crisis of 2007–2008 happened because of an explosive combination of agency problems, moral hazard, and “scientism”—the illusion that ostensibly scientiï¬c techniques would manage risks and predict rare events in spite of the stark empirical and theoretical realities that suggested otherwise. The authors analyze the varied behaviors, ideas and effects that in combination created a ï¬nancial meltdown, and discuss the players responsible for the consequences. In formulating a set of expectations for future ï¬nancial management, they suggest that ï¬nancial agents need more “skin in the game” to prevent irresponsible risk-taking from continuing.
Read the full paper here [PDF].
This article argues that the crisis of 2007–2008 happened because of an explosive combination of agency problems, moral hazard, and “scientism”—the illusion that ostensibly scientiï¬c techniques would manage risks and predict rare events in spite of the stark empirical and theoretical realities that suggested otherwise. The authors analyze the varied behaviors, ideas and effects that in combination created a ï¬nancial meltdown, and discuss the players responsible for the consequences. In formulating a set of expectations for future ï¬nancial management, they suggest that ï¬nancial agents need more “skin in the game” to prevent irresponsible risk-taking from continuing.
Read the full paper here [PDF].
