Sunday, March 01, 2009

Incompetent or Unethical?

This is a false dichotomy:
"One point they make is this: did economists know that the models that financial firms were using were flawed? If we answer 'no,' then we were spectacularly incompetent. If we answer 'yes,' then we were spectacularly unethical, because we failed to convey these flaws to decisionmakers."
Perhaps they were foolish to believe their models were robust enough to predict all possible outcomes. Nassim Nicholas Taleb would say they engaged in a Ludic Fallacy by fooling themselves into thinking they possessed all information and could accurately calculate risk. It does not require incompetence nor immorality to engage in such fallacious thinking, merely hubris.

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