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A Bloomberg article by Michael J. Moore shows that finance and investment employees frequently commit the cardinal sin of failing to diversify their personal holdings by holding too much of their own company’s stock:
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Current and former Morgan Stanley employees, who receive company shares to match their 401(k) contributions, held 24 percent of retirement assets in the firm’s stock before last year’s decline, the highest percentage of any of the banks. They lost $570 million in 2011 as the shares plunged 44 percent.
Bank of America Corp. (BAC) employees lost the most, $1.37 billion, as the lender’s stock dropped 58 percent last year. Workers at JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), both based in New York, also lost hundreds of millions of dollars.
JPMorgan employees, some of whom received stock in the company until last year to match retirement contributions, devoted 18 percent of their funds to the lender’s shares at the end of 2010. Bank of America employees put 13 percent of their assets in the bank’s stock, while the figures for Citigroup and New York-based Goldman Sachs Group Inc. (GS) were 8 percent and 2 percent, respectively.
Warning: what follows is a horribly long, inside-baseball post that most people will likely have little interest in reading, and which I had little interest in writing. But it did need to be written. Apologies for the length and the indulgence; we will soon return to our regular programming.
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I. Going on the attack is generally more fun, profitable, and attention-getting than playing defense. Politicians know this; athletes know it; even academics know it. Or perhaps I should say that especially academics know it?
Given the nature of the Freakonomics work that Steve Levitt and I do, we get our fair share of critiques. Some are ideological or political; others are emotional.
We generally look over such critiques to see if they contain worthwhile feedback, or point to an error in need of correction. But for the most part, we tend to not reply to critiques. It seems only fair to let critics have their say (as writers, we’ve already had ours). Furthermore, spending one’s time responding to wayward attacks is the kind of chore you’d rather skip in order to get on with your work.
But occasionally an attack is so spectacularly ridiculous, so riddled with errors and mangled logic, that it’s worth addressing.
The following essay responds to two such attacks. The first one was relatively minor, a recent blog post written by a Yale professor. The second was more substantial, an essay by a pair of statisticians in American Scientist. Feel free to skip ahead to that one (at section III below), or buckle up for the whole bumpy ride. Read More »
Glenn BECK: Glenn Beck. I’m an entrepreneur. I am a reluctant, believe it or not, commentator. And dad. Stephen DUBNER: All right, now to the theme of our conversation today — when I say media bias, you say what? BECK: Yes. [THEME] ANNOUNCER: From WNYC and APM, American Public Media: This is FREAKONOMICS […] Read More »
When it comes to politics and media, the left argues that the right is more biased than the left while the right argues that the left is more biased than the right. Who’s right?
That’s what we try to answer in our latest podcast, “How Biased Is Your Media?” (You can download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript below.) In a way, this episode is a follow-up to a podcast we put out a few months ago called “The Truth Is Out There, Isn’t It?,” which examined how we choose to believe what we believe about a variety of important issues. In this episode, we apply that same idea in a small-bore fashion, going after media bias. Read More »
The rogue trader is a recurring character in the story of finance over the last 20 years. This is the guy who makes secret, unauthorized bets with his bank’s money, driven by some seeming combination of inadequacy and a huge appetite for risk, and abetted at times by an amazing lack of internal controls.
The deeper he goes, the harder he has to work to conceal his deception until one day, it inevitably comes crashing down. The bank loses billions, the trader (sometimes) goes to jail. The story is repeated every several years. The latest version broke in September when UBS announced it had lost more than $2 billion as a result of rogue trader Kweku Adoboli.
In his new e-book, How to Be a Rogue Trader, Financial Times columnist John Gapper explains why this story has become so familiar over the years. As he puts it, the rogue trader is a species of sorts within the world of finance, a special breed with certain behaviors and characteristics that are consistent through time. Gapper delves into evolutionary biology and the research of Daniel Kahneman to better understand the nature of men like Nick Leeson, Joe Jett, and Jerome Kerviel. Read More »
Two weeks ago, we solicited your questions for Princeton psychology professor and Nobel laureate Daniel Kahneman, whose new book is called Thinking, Fast and Slow. You responded by asking 45 questions. Kahneman has answered 22 of them in one of the more in-depth and wide-ranging Q&A’s we’ve run recently. It’s a great read. As always, thanks for your questions, and thanks to Daniel Kahneman for taking the time to answer so many of them.
Q. Now that we understand reason as being largely unconscious, motivated by emotion, embodied and constituted by many biases and heuristics, where do you see the future of cognitive science going? Are we at the beginning stages of a paradigm shift? -McNerney Read More »
One of the first times I met Danny Kahneman was over dinner, just after SuperFreakonomics was published. Shortly after we were introduced, Danny said, “I enjoyed your new book. It will change the future of the world.” I beamed with pride at this compliment. Danny, however, was not done speaking. “It will change the future of the world. And not for the better.” While I’m sure many people would agree with his last sentence, he was the only person who ever said it to my face!
If you don’t know the name, Danny Kahneman is the non-economist who has had the greatest influence on economics of any non-economist who ever lived. A psychologist, he’s the only non-economist to win the Nobel Prize in Economics, for his pioneering work in behavioral economics. I don’t think it would be an exaggeration to say that he is among the 50 most influential economic thinkers of all time, and among the ten most influential living economic thinkers. Read More »