 | By 10am it emerged that Mr Perkins had single-handedly moved the global price of oil to an eight-month high during a “drunken blackout”. Prices leapt by more than $1.50 a barrel in under half an hour at around 2am – the kind of sharp swing caused by events of geo-political significance. Ten times the usual volume of futures contracts changed hands in just one hour. |
| Ethical issues aside, the banks also did poorly at their core job, which is managing risk. And, while there are plenty of honest, capable people in finance, the ease with which investors looked past Wall Street’s failings seems like a classic case of what the social psychologist Leon Festinger called “cognitive dissonance.” Festinger argued that when beliefs come into conflict with reality we think up explanations that shape reality to our beliefs, rather than vice versa. He used the example of the Millerites, a millenarian religious sect that came to believe that Jesus Christ would return to earth on October 22, 1844. He didn’t. But not all the Millerites abandoned their faith. Many set about constructing elaborate rationalizations to justify their belief, arguing that Christ had returned spiritually, or that the event had occurred in Heaven, if not on earth. Similarly, when people’s faith in Wall Street as an honest broker, a smart allocator of capital, and a path to personal wealth was disappointed, they managed to explain things away. |
About James Surowiecki:
“James Surowiecki has been a staff writer at The New Yorker since 2000. He writes The Financial Page. Surowiecki came to The New Yorker from Slate, where he wrote the Moneybox column. He has also been a contributing editor at Fortune and a staff writer at Talk. Previously, he was the business columnist for New York magazine. He has contributed to The Wall Street Journal, Wired, the New York Times Magazine, the Washington Post, and Lingua Franca, and has written on subjects ranging from Silicon Valley to college basketball.” (more)
More importantly, James Surowiecki is the author of The Wisdom of Crowds (2004)
