REM: van zijn troon gestoten door de financiële crisis?

Irene van Staveren, International Institute of Social Studies

of Erasmus University

Irene van StaverenProfessor of Pluralist Development Economics,

Institute of Social Studies of Erasmus University Rotterdam

8 maart 2012 – Kritische Studenten Utrecht, de Kargadoor.

REM, ofwel Max U voor de micro-economen, is door de financiële crisis van zijn

troon gestoten, aldus de financiële media:

• Financial Times: “Sweep economists off their throne”

• The Guardian: “The Nobel Prize for economics may need its own bailout”

• Business Week: “What good are economists anyway?”

• The Economist: “Whither the efficient market hypothesis?”

• Money Magazine: “How to rebuild a shamed subject”

Is REM echt verdwenen?

• Institutionele inertie in economische wetenschap Economische faculteiten en opleidingen Economische leerboeken Economische tijdschrijften Economische adviesinstituties

• Homogene samenstelling economen Dominante theorie Witte mannen van middelbare leeftijd

Zes alternatieve inzichten in het mensbeeld van de economische actor

1. Experimental economics: • Herbert Gintis, Samuel Bowles, Robert Boyd and

Ernst Fehr (2005, MIT): “Strong reciprocity is to cooperate and punish even at a cost and even when costs cannot be expected to be recovered later.”

• De helft van de mensen gedraagt zich cooperatief obv rechtvaardigheid in spellen zoals het ultimatumspel of publiek-goed spel. Dit geldt ook voor non-repeated and anonymous situations, dus niet obv enige vorm van eigenbelang.

2. History of heterodox economics: values & irrationality

Adam Smith: Liberty, Justice and Beneficence as three main value-oriented motivations

John Maynard Keynes: self-interest (rationality) and animal spirits (instincts and emotions) and herd behavior (social animal)

Herbert Simon: bounded rationality and framing effects, such as loss-aversion

Institutional economics: social norms (asymmetric versus symmetric, formal versus informal)

3. Beyond happiness or Max U (Seligman): “Flourish”

• Positive emotion (happiness)• Engagement (flow)• Relationships (social bonding: social capital

& social cohesion)• Meaning (ethics)• Accomplishment (competitiveness versus

team achievement)

4. Perverse incentives

• Variabele beloning is alleen effectief bij eenvoudige repetitieve taken

• In complexe besluitvorming in sociale context worden financiele incentives ineffectief

• Variabele beloning is in complexe sociale context alleen effectief op team niveau met algemene doelstelling en meten achteraf

5a. Biology: animal life

• Frans de Waal: “All species that rely on cooperation – from elephants to wolves and people – show group loyalty and helping tendencies”

• Primates:– Chimpanzees help others, even in novel situations– Chimpanzees offer consolation– Bonobos are socially closer to humans than Chimpanzees at

DNA level: both are less aggressive and more equally organized.

5b. Biology: hormones in humans

The testosterone-effect: see next slide

Het ‘Testosteron Effect’

• wangslijm 2 x p/dag bij 17 London City Traders: testosteron en cortisol

• hoe hoger het testosteron s’ochtend hoe hoger de winst; zelfde voor s’middags

• hoe hoger de winst hoe hoger cortisol; hoe groter volatitieit hoe hoger cortisol bij groep

• probleem van langdurig hoog testosteron: roekeloosheid, impulsiviteit, verslavend

• probleem van langdurig hoog corticol: stress, angst bij besluitvorming

6. Socialization: gender differences in finance

• Gender differences in risk (lower by women)

• Gender differences in cooperation (stronger by women)

• Gender differences in behavioral adjustments (klokkenluiders; more changes in risk profile in volatile markets)

De ‘Lehman Sisters hypothese’:

De ‘Female Sheriffs of Wall Street’:

Klokkenluiders:•Brooksley Born (CFTC)•Sheila Bear (US Fed Deposit Insurance Corporation)

Samen met:•Mary Shapiro (SEC)•Christine Lagarde (IMF)

Review of relevant literature & trends (1)

• Risk & transaction costs

Female fund managers in US performed 65 % better than men in period 2000-2008During mortgage crisis 2008 men lost twice as much as women didWomen take on average less risk than men, which results in higher ROI in volatile marketsControlled for risk, women outperform men in household investment portfolios due to less un-necessary trading -> lower transaction costs than men who try to ‘beat the market’

Review of relevant literature & trends (2)

• Abstract thinking increases one’s sense of power (finding from neuropsychology)

• this is likely to induce one to ignore increasing risk in times of crisis

• women fund managers did less abstract thinking and took more time for decisions; men followed same rules as before, women reacted more contextually

Review of relevant literature & trends (3)

• Women are more cooperative than men They react more to a changing context in

experimental economics UK listed firms have better financial performance

when having more gender diversity in the board

• Women clean up the mess after the crisis Three female sheriffs of Wall Street (see above +

Mary Shapiro chair SEC) and female president of the IMF during euro crisis 2011

Women perceive more stress but have wider repertoire of stress management

Glass cliff: under fragile business conditions, more women were hired at the top in UK listed firms

Empirical study in the Netherlands

• Online survey, through women’s financial network on LinkedIn

• N = 111; 74 women (66.7%), 37 men (33.3%)

• December 2010-January 2011• Results are not representative:

exploratory study

Diagnose van de crisis: individueel niveau

• 90%: bonussen niet meer koppelen aan korte termijn doelen

• 65%: zegt risico benedenwaarts aan te passen bij onrustige markten

• 25%: erkent achteraf dat hij/zijn meer verantwoordelijk had moeten handelen

Average risk level before and after the crisis (%)

0

10

20

30

40

50

60

70

80

Very low Low Neutral High Very high

Female 2007Male 2007Female 2009Male 2009

Note: X2 2007: not statistically significant; X2 2009: p < 0.1

Yes No Total

Female 45.9 54.1 100

Male 64.9 35.1 100

Total 52.3 47.7 100

Table 8. Have Dutch banks become too big to fail? (%)

Note: X2: p < 0.1

Yes No Total

Female 97.3 2.7 100

Male 81.1 18.9 100

Total 91.9 8.1 100

Table 9. Should more women be hired at the financial top? (%)

Note: X2: p < 00.1