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The Role of Decision-Making Biases in Ireland's Banking Crisis

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  • Lunn, Pete

Abstract

This paper considers Ireland's banking crisis from the perspective of behavioural economics. It assesses whether known biases in judgement and decision-making were instrumental in the development and severity of the crisis. It investigates evidence that key decision-makers, including consumers, businesspeople, bankers and regulators, as well as parties such as civil servants, politicians, academics and journalists, were influenced by seven specific phenomena which have been identified previously via experiments and field studies. It concludes that evidence is consistent with the influence of these established phenomena. Ireland's long boom, rapid financial integration and lack of relevant past experience may have increased the vulnerability of decision-makers to economic and financial reasoning that proved disadvantageous. The analysis has potential implications for attempts to prevent future crises.

Suggested Citation

  • Lunn, Pete, 2011. "The Role of Decision-Making Biases in Ireland's Banking Crisis," Papers WP389, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp389
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    File URL: http://www.esri.ie/pubs/WP389.pdf
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Are the Irish Government nuts? Their housing policy is…
      by Brian Lucey in Brian M. Lucey on 2014-05-17 11:13:20

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    Cited by:

    1. Duffy, David & Foley, Daniel & McQuinn, Kieran & Mc Inerney, Niall, 2016. "An Empirical Assessment of the Macroprudential Measures in the Irish Housing Market," Research Notes RN2016/3/1, Economic and Social Research Institute (ESRI).
    2. Philip R. Lane, 2016. "Macro-financial stability under EMU," ESRB Working Paper Series 01, European Systemic Risk Board.
    3. Philip R. Lane, 2015. "Macro-Financial Stability under EMU," Trinity Economics Papers tep0615, Trinity College Dublin, Department of Economics.
    4. Duffy, David & McQuinn, Kieran & Foley, Daniel, 2016. "Quarterly Economic Commentary, Autumn 2016," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20163.
    5. Lane, Philip R., 2015. "Macro-Financial Stability under EMU," CEPR Discussion Papers 10776, C.E.P.R. Discussion Papers.

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