by Tyler Cowen
on September 27, 2009 at 4:08 pm
1. Interview with Daniel Kahneman.
2. More on why executive compensation was not the problem.
3. The Irish pint isn't actually that traditional after all.
4. Hair dye as a countercyclical indicator.
5. "The true number may be lower" — you don't hear that one so much.
For example, he says, “neither bank C.E.O.’s nor regulators thought that banks were taking excessive risks.† So if the risks were viewed as small, he adds, “compensation incentives would not induce them to avoid those risks.†
Ok, so highly compensated CEOs were no better at assessing risk than middle class salaried regulators, so what is the justification for paying the huge bonuses to the CEOs?
Is it actually possible to prove that compensation is responsible for the crisis?
If there was fairly intense competition to attract senior bankers to jobs, all the compensation packages would have been roughly equivalent. In which case there will be no significant differences to analyse in any study.
Something to learn from the crisis: there are limits to what you can find out with mathematics and statistics alone. You also need a bit of common sense.
Don’t get optimistic yet: Hair color sales increase is more probably due to more at-home box kits sold and a reduction of salon sets. According to my self-serving stylist, L’Oreal sells the French stuff to the salons and the Mexican made kits to the consumer. Not sure of the veracity of his assertion. However, it is an easy budget cut to dye your hair at home between/instead of salon visits.
“Ok, so highly compensated CEOs were no better at assessing risk than middle class salaried regulators, so what is the justification for paying the huge bonuses to the CEOs?”
Because the middle managers hide the risks from the CEOs. We aren’t talking about justification, we are talking about causation. If the totality of the incentive package didn’t cause the crisis, then what you are talking about is politics.
More on why executive compensation was not the problem.
Isn’t this a repeat?
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