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Learning From the Global Financial CrisisCreatively, Reliably, and Sustainably$
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Paul Shrivastava and Matt Statler

Print publication date: 2012

Print ISBN-13: 9780804770095

Published to Stanford Scholarship Online: June 2013

DOI: 10.11126/stanford/9780804770095.001.0001

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Wrong Assumptions and Risk Cultures

Wrong Assumptions and Risk Cultures

Deeper Causes of the Global Financial Crisis

Chapter:
(p.188) 10 Wrong Assumptions and Risk Cultures
Source:
Learning From the Global Financial Crisis
Author(s):

Ian I. Mitroff

Can M. Alpaslan

Publisher:
Stanford University Press
DOI:10.11126/stanford/9780804770095.003.0011

This chapter analyzes the incorrect assumptions and risk cultures that are the deep and hidden root causes of the financial crisis. It argues that the crisis was caused not simply by technical economic and regulatory failures but rather by the unconscious psychological and cultural assumptions prevalent in financial companies and financial markets. These assumptions are reductionist and incomplete in portraying human motivation reduced to self-interest, complex human emotions reduced to fear and greed, all available information about asset values reduced to market prices, and all information about the riskiness of assets reduced to asset price volatility. Such obsessive reductionism eventually led to the failure of risk management. This chapter recommends moving financial companies from a culture of risk, selfishness, and narcissism to a culture of trust.

Keywords:   risk cultures, financial markets, asset values, reductionism, risk management

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