Banker Compensation and Confirmation Bias

Hamid Sabourian and Anne C. Sibert

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Confirmation bias refers to cognitive errors that bias one towards one's own prior beliefs. A vast empirical literature documents its existence and psychologists identify it as one of the most problematic aspects of human reasoning. In this paper, we present three related scenarios where rational behaviour leads to outcomes that are observationally equivalent to different types of conformation bias. As an application, the model provides an explanation for how the reward structure in the financial services industry led to the seemingly irrational behaviour of bankers and other employees of financial institutions prior to the credit crisis of that erupted in the summer of 2007.

Keywords: confirmation bias; belief persistence; overconfidence; signalling; credit crisis (search for similar items in EconPapers)
JEL-codes: D81 D82 D83 G21 (search for similar items in EconPapers)
Date: 2009-10-12
New Economics Papers: this item is included in nep-cbe and nep-neu
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://files.econ.cam.ac.uk/repec/cam/pdf/cwpe0940.pdf

Related works:
Working Paper: Banker Compensation and Confirmation Bias (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0940

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().