How do you view the current financial crisis from the behavioural economics angle?
There are many different lenses through which one can view the behavioural angle. One lense that I firmly believe in, but nobody ever believes when I tell them and they never will, is the ‘hindsight bias’. Frankly, nobody really saw this coming. Maybe a few people did, but by and large nobody saw it coming. And somehow, as time goes by more and more people feel like yes we saw it coming. That to me is just hindsight bias. I even have this nagging suspicion that people who saw it coming saw it because they kept saying negative things about it. They are just pessimists. They are saying negative things about everything. It is useful to contrast the current crisis with the Internet bubble. In the Internet bubble a lot of people saw it coming. And one reason we know that is because there was smart money on the other side of the bubble, when the bubble was bursting. They rode it up on its way up and they just got onto the other side before it burst. So those guys obviously saw this coming. M
