The success of the financial services industry
relies on effective day-to-day risk management.
Traditionally this focuses on statistical analysis and
algorithms but one crucial aspect of risk, often ignored, is the performance of those who work within the industry
FINANCIAL CASE STUDY
The 2008 financial crisis had many route causes, however behavioral economists believe that heuristics and biases, which litter our brains, play a significant role in poor decision making within the sector. These can be thought of as subconscious thought short cuts that corrupt our rational thought processes.
At the end of 2007, UBS announced that it would write off $18 billion of failed investments relating to subprime housing market in the U.S. In April 2008,
the write offs increased to $37 billion, and then rose above $50 billion.
In October 2008, the Swiss central bank announced its intention to take $60 billion of toxic assets off UBS’s balance sheet, and to inject $6 billion of equity capital.
For UBS, these write offs were the result of having ineffective processes in place that failed to address psychological biases.
Notably, cognitive biases permeated many of the decisions UBS made in connection with subprime mortgages and financial derivatives. Such biases litter the human brain and cloud our decision making.
Bespoke Keynote Speaking
Flight Simulator Away Day
4 Individual Masterclasses
WIDER INDUSTRIAL INCIDENTS
Herald of Free Enterprise
Human error: fatigue and poor communication
On 6th March 1987, the roll on roll off ferry sailed
from Zeebrugge with her bow doors open.
The ferry capsized and 193 died in the icy waters.
The assistant boatswain fell as sleep and did not
close the bow doors.
Chernobyl - Nuclear Reactor Melt Down
Human error: loss of situational awareness
A series of human errors committed at the Chernobyl nuclear power plant during tests designed to find
out how long stable power could be maintained in
the event of a power failure, led to an accident in
1986 with claimed 31 lives.
Kegworth - Air Crash
Human error: quick decision-making, hierarchy gradient
A Boeing 737 crashed in UK after the flight crew wrongly diagnosed a fire in the right hand engine.
The captain make a quick decision to close down the right hand engine. Passengers could see that the left engine was on fire but failed to tell the Flight Deck.