Advice For The PE–This Is Your Brain on Prosperity: Andrew Lo on Fear, Greed, and Crisis Management – Freakonomics Blog – NYTimes.com

Excellent Advice for the PE Obama.

In the long run, more transparency into the “shadow banking” system; more education for investors, policymakers, and business leaders; and more behaviorally oriented regulation will allow us to weather any type of financial crisis. Regulation enables us to restrain our behavior during periods when we know we will misbehave; it is most useful during periods of collective fear or greed and should be designed accordingly. Corporate governance should also be revisited from this perspective; if we truly value naysayers during periods of corporate excess, then we should institute management changes to protect and reward their independence.

If “crisis is a terrible thing to waste,” as some have argued, then we have a short window of opportunity — before economic recovery begins to weaken our resolve — to reform our regulatory infrastructure for the better. The fact that time heals all wounds may be good for our mental health, but it may not help maintain our economic wealth.

This Is Your Brain on Prosperity: Andrew Lo on Fear, Greed, and Crisis Management – Freakonomics Blog – NYTimes.com.

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