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Causes of the financial crisis: Risk misperception, policy mistakes, and banks' bounded rationality

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  • Rötheli, Tobias F.

Abstract

This article describes important determinants of the current financial crisis. In particular, the text focuses on the bounded rationality of banks which contributes to the credit cycle. The credit cycle is the mechanism that links the present financial crisis with earlier crisis. Shortcomings on the side of monetary policy, rating agencies, and bank regulation are also discussed. We propose measures to strengthen the stabilizing effect of market forces, banks' risk management, as well as possible changes to regulation and monetary policy.

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  • Rötheli, Tobias F., 2010. "Causes of the financial crisis: Risk misperception, policy mistakes, and banks' bounded rationality," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 119-126, April.
    • Handle: RePEc:eee:soceco:v:39:y:2010:i:2:p:119-126
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    Cited by:

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    2. Siddiqi, Hammad, 2015. "Analogy Based Valuation of Currency Options," MPRA Paper 62333, University Library of Munich, Germany.
    3. Siddiqi, Hammad, 2015. "Analogy Based Valuation of Currency Options," Risk and Sustainable Management Group Working Papers 198776, University of Queensland, School of Economics.
    4. O'Callaghan, Patrick, 2015. "Minimal conditions for parametric continuity of a utility representation," Risk and Sustainable Management Group Working Papers 200371, University of Queensland, School of Economics.
    5. Ahmad Raza Bilal & Noraini Bt. Abu Talib & Mohd Noor Azli Ali Khan, 2013. "Remodeling of risk management in banking: evidence from the sub-continent and gulf," Journal of Risk Finance, Emerald Group Publishing, vol. 14(5), pages 468-489, November.
    6. Ahmad Raza Bilal & Noraini Bt. Abu Talib & Mohd Noor Azli Ali Khan, 2013. "Remodeling of risk management in banking: evidence from the sub-continent and gulf," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 14(5), pages 468-489, November.
    7. Siddiqi, Hammad, 2015. "Anchoring Heuristic in Option Pricing," MPRA Paper 63218, University Library of Munich, Germany.
    8. Miklós Antal & Ardjan Gazheli & Jeroen C.J.M. van den Bergh, 2012. "Behavioural Foundations of Sustainability Transitions. WWWforEurope Working Paper No. 3," WIFO Studies, WIFO, number 46424.
    9. Siddiqi, Hammad, 2015. "Relative Risk Perception and the Puzzle of Covered Call Writing," Risk and Sustainable Management Group Working Papers 199882, University of Queensland, School of Economics.
    10. Ding, Cherng G. & Wu, Chiu-Hui & Chang, Pao-Long, 2013. "The influence of government intervention on the trajectory of bank performance during the global financial crisis: A comparative study among Asian economies," Journal of Financial Stability, Elsevier, vol. 9(4), pages 556-564.
    11. Siddiqi, Hammad, 2014. "Anchoring Heuristic in Option Prices," MPRA Paper 66018, University Library of Munich, Germany, revised 15 Jul 2015.
    12. Ammar Ahmed & Ismail bin Lebai Othman, 2017. "The Impact of Strategic Attributes on Organizational Performance in Pakistan Banking Sector: A Review and Suggestions for Future Research," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(8), pages 371-387, August.
    13. Siddiqi, Hammad, 2015. "Relative Risk Perception and the Puzzle of Covered Call writing," MPRA Paper 62763, University Library of Munich, Germany.
    14. Siddiqi, Hammad, 2015. "Explaining the Smile in Currency Options: Is it Anchoring?," MPRA Paper 63528, University Library of Munich, Germany.
    15. Siddiqi, Hammad, 2015. "Anchoring and Adjustment Heuristic in Option Pricing," MPRA Paper 68595, University Library of Munich, Germany.

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