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Giant Pool Of Money Essay

1056 words - 5 pages

The Giant Pool of Money Analysis
The housing crisis that occurred less than a decade ago is a great example, and has become an extensively covered case study, of how dangerous certain biases and heuristics can become if left unchecked on a massive scale. Alex Blumberg and Adam Davidson, in collaboration with NPR News, put together a special program titled “The Giant Pool of Money,” where they explore just how the phenomenon occurred and the underlying factors that contributed through sound bites of those directly involved, affected, or simply aware of the situation as it unfolded. Based on descriptions of various biases and heuristics in Judgment in Managerial Decision Making (Bazerman, ...view middle of the document...

And it did, as Blumberg and Davidson describe in their program, until it didn’t.
While the “ease of recall” bias was prevalent throughout each step of the chain, from small banks up to the largest of global funds, there were some involved who weren’t fooled. Mike Garner is recorded as stating that his “boss had been in the business for 25 years. And he hated those loans…he fought the owners and the sales force, tooth and neck, about these guidelines... Other people are offering it. We’re going to offer it too.” (Glass, 2008) Ultimately though, the largest of financial institutions had to buy into the idea of mortgage backed loans, and they presumably employed very smart people to assess the situation and risk involved. Adam Davidson addressed this notion directly in noting that “a big part of this whole story, the whole crises, is that a lot of really smart people, people who knew better, fooled themselves with this data.” (Glass, 2008). This data was, as Mike Francis put it, “all we had to review, to look at, on loans that were in production, that were years old, was positive.” The “ease of recall” bias also lent itself as a powerful tool when certain data was heavily used, such as home prices, to indicate more financial gains were in the future, however other data that wasn’t discussed as often, such as median household incomes, stayed flat. (Glass, 2008) These two factors combined can be considered to be at the core of the crisis that ensued.
“Anchoring,” as defined by Bazerman and Moore, is the instance where “individuals make estimates for values based upon an initial value (derived from past events, random assignment, or whatever information is available) and typically make insufficient adjustments from that anchor when establishing a final value. The instances where “anchoring” and “ease of recall” sometimes overlap, as they can be related when it comes to data reference points. For example, the anchor used for the risk of a loan was tied to 2003, “where just about everybody who wanted a mortgage and was qualified to get one, had gotten one.” (Glass, 2008)...

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