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    Banker compensation and confirmation bias

    Sabourian, H. and Sibert, Anne (2009) Banker compensation and confirmation bias. Discussion Paper. Centre for Economic Policy Research, London, UK.

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    Abstract

    Confirmation bias refers to cognitive errors that bias one towards one's own prior beliefs. A vast empirical literature documents its existence and psychologists identify it as one of the most problematic aspects of human reasoning. In this paper, we present three related scenarios where rational behaviour leads to outcomes that are observationally equivalent to different types of conformation bias. As an application, the model provides an explanation for how the reward structure in the financial services industry led to the seemingly irrational behaviour of bankers and other employees of financial institutions prior to the financial crisis of that erupted in the summer of 2007.

    Metadata

    Item Type: Monograph (Discussion Paper)
    Additional Information: Discussion paper 7263
    Keyword(s) / Subject(s): belief persistence, confirmation bias, financial crisis, overconfidence, signalling
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 03 Jun 2013 07:20
    Last Modified: 03 Jun 2013 07:20
    URI: http://eprints.bbk.ac.uk/id/eprint/7175

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