Opinion: Psychological Dynamics in a Madoff Made-Up World

Summary

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Amid the disgust over Ponzi's latest appearance courtesy of Bernard L. Madoff, tip-toes the sheepishly answered question of how the professionals got duped. The biggest bank in Spain, Nomura in Japan and BNP Paribas surely should have known better. Shouldn't they?

Presuming humans run the banks across both oceans, they might actually have had less of a chance based on their skills in a Mr. Spock act, the impersonation of making investment decisions totally devoid of all emotion. The ostensibly irrefutable commandment of profitable investing taught them to put capital at risk only after stoic, rational and mathematical analyses. Indeed given the stated returns and relatively benign big-cap, option collars strategy it looked like they were doing exactly that. Alas, they weren't because they can't.

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Opinion: Psychological Dynamics in a Madoff Made-Up World

The new science of neuroeconomics, the study of our brain's processes for making financial decisions, together with behavioral research, are amassing revolutionary evidence for the indispensable role of feelings and emotions in analysis and decisions. Therefore, the previously accepted strategy of extracting feeling and emotion in actual...

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