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Cognitive Tics of the Herd

Paul Daly
Too Big to Fail, by Andrew Ross Sorkin, Allen Lane, 640 pp, £14.99, ISBN: 978-1846142383 That Joe Gregory, a former senior executive at Lehman Brothers, extolled the virtues of Malcom Gladwell’s Blink tells us something about Too Big to Fail and a lot about Gregory and his ilk. Andrew Ross Sorkin’s pulsating account of the 2008 crisis on Wall Street, from the rescue of Bear Sterns, to the collapse of Lehman Brothers to the huge government bail-out engineered by treasury secretary Henry Paulson, is full of memorable details. Ross Sorkin is the chief mergers and acquisitions correspondent of the New York Times, and he conducted wide-ranging interviews with the leading players in the drama, most of whom insisted on anonymity. In style, it resembles the 1990 classic Barbarians at the Gate, in which Bryan Burrough and John Helyar chronicled the leveraged buyout of RJR Nabisco. There, as here, it is the little things that matter. Thus we learn that Gregory not only enjoyed Blink but proselytised about it: “He gave out copies of the book and had even hired the author to lecture employees on trusting their instincts when making difficult decisions. In an industry based on analysing raw data, Gregory was defiantly a gut man.” But Gladwell’s book is a simplistic discussion of controversial and difficult concepts developed in fields such as economics and psychology. For the average reader, it is none the worse for that, but it is hardly suitable for use in environments where billions of dollars may be at stake. As Richard Posner pointed out in an excoriating review, “Practice may not make perfect, but it enables an experienced person to arrive at conclusions more quickly than a neophyte. The expert’s snap judgment is the result of a deliberative process made unconscious through habituation.” Instincts may be good, but they have to be honed in order to be so. To be fair to Gladwell, he does hint at times that the human cognitive function is a difficult beast to tame. One suspects, however, that the nuances were lost on Gregory. One of the lessons from Too Big to Fail and the current financial crisis is that Wall Street could have done with more exposure to concepts of cognitive psychology and behavioural economics. Consider, for example, the phenomenon of group-think. Individuals in an organisation may become obsessed with achieving the goals of the organisation, sometimes to the extent that they will fail to see storms brewing on…



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