Risk Management and the Financial Crisis: A Behavioral Perspective
Presented by Hersh Shefrin, Professor of Finance at Santa Clara University, faculty member Master of Science in Risk Management Program at NYU Stern
Original Broadcast: October 26, 2011
No physical events, such as a tsunami, war, or climate change precipitated the global financial crisis, whose effects will continue for many years. Instead, the root cause of that crisis was psychological. In the events which led up to the crisis, heuristics, biases, and framing effects strongly influenced the practice of risk management within key financial firms and rating agencies. Examples involving Merrill Lynch, UBS, Citigroup, Standard & Poor’s, and AIG illustrate this point. The associated risk management practices represent low hanging behavioral fruit. There are also deeper structural behavioral issues lying at the intersection between the financial system and political system.
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ABOUT THE PRESENTER: Hersh Shefrin is the Mario L. Belotti Professor of Finance at Santa Clara University. He also teaches in the Master of Science in Risk Management Program at NYU Stern. He received his PhD from the London School of Economics in 1974 and holds an honorary doctorate from the University of Oulu, Finland, and is an honorary guest professor at Central-South University in Changsha, China. His book Beyond Greed and Fear provides a comprehensive approach to behavioral finance, and in 2009 was recognized by J.P. Morgan Chase as one of the top ten books published since 2000.
Among Professor Shefrin's other works include: A Behavioral Approach to Asset Pricing, Behavioral Corporate Finance, and Ending the Management Illusiion. His work entitled "Role of Behavioral Finance in Risk Management," appears as a chapter in Risk Management: A Modern Perspective, edited by Micheal Ong. According to a 2003 article that appeared in the American Economic Review, he is one of the top 15 economic theorists to have influenced empirical work. Professor Shefrin is frequently interviewed by the media on financial matters.
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To learn more about the Master of Science in Risk Management for Executives held jointly by NYU Stern School of Business and Amsterdam Institute of Finance (AIF), click here.