Acceso usuarios
There are two competing "narratives" for decision-making processes evidenced in accounts of the 2007-2008 financial crisis. The narrative of "moral failure" focuses on the role played by compensation structures (and other principal-agent type issues) in encouraging executives to place their companies at risk. On the other hand, the narrative of "cognitive failure" emphasizes the inability of private and corporate actors to understand what they were doing. Although financial institutions have emerged as expert systems in the risk society, playing a key role in introducing new forms of manufactured risk into financial markets, the 2007-2008 financial crisis saw a widespread breakdown of systems and internal risk controls used in the industry, leading to the collapse (or near-collapse) of major financial institutions. Taking the narrative of 'cognitive failure' seriously, we identify the paradigm of quantifiable risk as an epistemic fallacy at the root of the financial crisis and ask why this dominant paradigm has endured in mainstream economics and risk management despite its repeated failures.
