Are bank executives immune to Randomness?

Well, it was a dumb question but I don't know then why every journalist and research papers keep asking the question:

How did the bank executives takes so much risk and were disconnected with the risk reward relationship?

I have a simple answer, they are HUMAN and we are wired to miscalculate risk, read the work of Daniel Kahenman & Amos Tverskey and Dan Gilbert... they have proved that everyone, I mean everyone of us has what they termed as Heuristics and Biases. Heuristics are something like a short cut and bias is of course Bias. We tend to make decisions based on our Heuristics and our biases, there is no complicated risk reward equation involved in dealing with the decisions the executives of the banks were making. Well, how did they get this right before... simple, they got lucky! period!

Randomness

I have finished listening to Nassim Nicholas Taleb's book The Black Swan. My understanding on using the Gaussian method to describe social sciences like economics has been altered forever. Believe me I spent quite a lot of time in Graduate School learning and reading about the beauty of "the bell curve" to describe random variables. Although it was elegant, pure and tight in describing some systems I feel I should have been more skeptical of its inference capabilities. I also think my professors should have spent more time describing situations where it does not work which is any random variable that is derived through aggregation for example total stock returns from a portfolio of stocks, wealth, stock prices, interest rates, currencies exchange rates, i.e. all macroeconomic indicators. When I think about this I am not sure if the above variables are random at all, as they all have some form of dependency.

Audio Books are awesome!

I have finished listening to a book "The Road Less Travelled" by Scott Peck. It took me 4 hours to listen to it. I was referred to the site Audible where you can download a book into your iTunes and it gets automatically synchronized to your iPod. It is pretty cool and I am sure I am going to listen to many more books before the end of 2007