A Behavioral Approach To The Global Financial Crisis
AbstractThe purpose of this paper is to reflect the behavioral biases that led to this global financial crisis. The paper presents briefly the real causes of the crisis (structural and cyclical factors) and puts a greater accent on the behavioral factors. The authors considered to structure the paper in three main pillars: behavioral factors, the collapse of ethical behavior and the role of behavioral finance in studying, regulating and assessment financial risks. The first pillar consists in a brief presentation of the behavioral factors such as: optimism and wishful thinking, overconfidence, greed, regret, pessimism, passing the responsibility, herding - groupthink, anchoring, representativeness biases, informational cascades and "this time is different" syndrome. The second pillar of the paper presents the collapse of ethical behavior that led to the global financial crisis: predatory lending practices, inappropriate compensation schemes, rating agencies behavior, corporate governance reforms and financial institutions opacity in their reporting. The third pillar presents the mismanagement of risk and regulations that led us into this global mess. The paper concludes with the need of integrating biases of human behavior into regulations in order to make them more effective and people become less financially vulnerable.
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Bibliographic InfoArticle provided by University of Oradea, Faculty of Economics in its journal The Annals of the University of Oradea. Economic Sciences.
Volume (Year): 1 (2011)
Issue (Month): 2 (December)
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Postal: Universitatii str. 1, Office F209, 410087 Oradea, Bihor
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Web page: http://anale.steconomiceuoradea.ro/
More information through EDIRC
behavioral finance; irrationality; regulation; crisis;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daianu, Daniel & Lungu, Laurian, 2008. "Why Is This Financial Crisis Occurring? How To Respond To It?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(4), pages 59-87, December.
- Chang-Yi Hsu & Jean Yu & Shiow-Ying Wen, 2013. "The Analysts’ Forecast of IPO Firms during the Global Financial Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 673-682.
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