This is your economy on drugs

[nancylebov]

Here's a hypothesis that part of the financial crisis is that the financial industry was running on amphetamines, a drug which increases energy and decreases judgement.

For a while, I've been pushing the idea that the 70 to 90 hour work weeks made it harder for people to ask whether what they were doing made sense. Speed would only make the problem worse.

When I originally proposed this, I was told that, no, everyone in the financial industry was under pressures which made their behavior inevitable. On the other hand, the pressures were the result of policies and choices which were a matter of individual judgment.

"The wisdom of crowds" only applies if the crowd is composed of independent people who aren't nuts.

Link from a comment by John Emerson here. Most of the comments are interesting. I used to read Megan McArdle back when she was Jane Galt, but I got bored when she started writing for the Atlantic.

Comments

[nancylebov.livejournal.com]

As you say, the unconscious decision to stop thinking is pervasive. I agree that it's an important process to keep an eye on, but an additional explanation may be needed for why it got so bad as to lead to disaster.

I do say *may* be needed. It might be that random factors just add up now and then so that pervasive blind spots take you off a cliff.

I'm wondering what proportion of sensible people you need to keep things going. I suspect it's not that high so long as they aren't completely powerless.

Notion of the day: Institutions only work to the extent that people think they aren't magic. This applies to both business and government.

Possibly interesting blog: <a href="http://www.overcomingbias.com>Overcoming Bias</a>-- it's about mental biases.