The Gordon Gekko Effect: The Role of Culture in the Financial Industry

Andrew Lo ()

No 21267, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Culture is a potent force in shaping individual and group behavior, yet it has received scant attention in the context of financial risk management and the recent financial crisis. I present a brief overview of the role of culture according to psychologists, sociologists, and economists, and then present a specific framework for analyzing culture in the context of financial practices and institutions in which three questions are answered: (1) What is culture?; (2) Does it matter?; and (3) Can it be changed? I illustrate the utility of this framework by applying it to five concrete situations—Long Term Capital Management; AIG Financial Products; Lehman Brothers and Repo 105; Société Générale’s rogue trader; and the SEC and the Madoff Ponzi scheme—and conclude with a proposal to change culture via “behavioral risk management.”

JEL-codes: G01 G28 G3 M14 Z1 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-pke and nep-rmg
Note: AP CF IO LS POL PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Lo, Andrew W., 2016. "The Gordon Gekko effect: the role of culture in the financial industry," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 17-42.

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Journal Article: The Gordon Gekko effect: the role of culture in the financial industry (2016)
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