Myopia and the Global Financial Crisis: Context-Specific Reasoning, Market Structure, and Institutional Governance

36 Pages Posted: 6 Mar 2010

See all articles by Gordon L. Clark

Gordon L. Clark

Oxford University - Smith School of Enterprise and the Environment

Date Written: March 4, 2010

Abstract

Many people are unable or unwilling to spend the resources necessary to look beyond the short-term and integrate the local with the global. As illustrated by the global financial crisis, the costs of myopia for individual and collective welfare can be far-reaching. In the context of the global financial crisis, I survey the costs of myopia and move on to the experimental evidence on the nature and scope of time/space myopia referencing early work by Kahneman and Tversky. Having put the case for the importance of myopia against those who assume perfection and those who believe human beings are Bayesian by impulse or by training, I consider the interaction between human predilections and the market environment in which decisions must be made. Different levels of behavioural sophistication combined with being embedded in so-called "reinforcing" or "regulatory" environments can give rise to quite different expressions of myopia with implications for the governance of institutions and government policy. Looking forward, it is suggested that whether or not myopia can be in some sense managed will have enormous implications for how we cope with the prospect of increasing global financial market volatility over the coming decades.

Keywords: Myopia, crisis, financial markets, behaviour, volatility

JEL Classification: D03, G01, G14, G24

Suggested Citation

Clark, Gordon L., Myopia and the Global Financial Crisis: Context-Specific Reasoning, Market Structure, and Institutional Governance (March 4, 2010). Available at SSRN: https://ssrn.com/abstract=1564849 or http://dx.doi.org/10.2139/ssrn.1564849

Gordon L. Clark (Contact Author)

Oxford University - Smith School of Enterprise and the Environment ( email )

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+44 1865 285197 (Phone)
+44 1865 285073 (Fax)

HOME PAGE: http://www.geog.ox.ac.uk/staff/glclark.html

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