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Everyone on the island felt let down. The cult of finance had led to the contraction of a successful fishing industry. Too many talented people had been sucked into trading which, with the benefit of hindsight, was little more than a zero-sum activity generating little or not output. How could so m…

What does it mean to be rational in a world of radical uncertainty? Once we are liberated from the view that there is a single optimising solution, rules of thumb--technically known as heuristics--are better seen as rational ways to cope with an unknowable future. A heuristic is a decision rule tha…

[...] There are three reasons to believe that, before the crisis, the banking sector as a whole became too large. [...] The belief that when in trouble banks will be bailed out by the state because they are too important to fail leads to an implicit subsidy, which means a larger banking system than…

Financial engineering allows banks and shadow banks to manufacture additional assets almost without limit. This has had two consequences. First, the new instruments created are traded largely among big financial institutions and so the financial system has become enormously more interconnected. [..…

[...] There was a view that being very clever was a justification for making money out of people who were less clever. This attitude encouraged the arrogance of the traders who rigged and fixed prices in what were thought to be competitive markets. [...]