Should financiers feel guilt? If they did, would that make the world of money safer? In the years since the 2008 Financial Crisis, these questions have been raised with a sense of anger by politicians, media pundits and ordinary citizens. Now the mighty New York Federal Reserve is exploring the issue in a more forward-facing — and geeky — way too.
Last week it released a series of podcasts and a mountain of research documents, which draw on the work of psychologists, neuroscientists and social scientists to examine “the norms and mindsets that contribute to the spectrum of decision-making, from ethical to unethical”. This included a discussion about the predictive power of “guilt” among financiers, drawing on work by Taya Cohen, a Carnegie Mellon professor, which argues that “highly guilt-prone individuals” may have a “moral advantage” in workplaces and that banks should try to hire them.
Separately, Mark Mortensen, an Insead professor, examines why formal rules cannot prevent bad behaviour in a Zoom culture, and David Grosse, head of risk and culture at HSBC, explains what group dynamics show about trading floors, while compliance officials at groups such as NatWest reveal how they use psychology to track risk. (Full disclosure, I also briefly comment on the anthropology of finance.) The aim, says NY Fed president John Williams, is to understand the importance of culture in shaping decisions at “the individual and institution-wide levels”.