There are plenty of economic explanations being offered to explain bankers’ risky behavior (e.g., poorly designed incentive plans, inadequate risk modeling). On a more basic level, the old standbys ignorance, hubris, and greed are called on. I’m sure some people were ignorant of the risks, and some people were in it for the money. But how do you explain the participation of very intelligent people who were aware of the risks, had every reason to protect their good reputations, and had no economic reason to jeopardize their already very lucrative positions? And it’s not just bankers – why do successful real estate investors continue to leverage their portfolios to the max and take on high risk deals, when they could secure their positions and be able to ride out any storm?
Maybe it’s their brain chemistry; human brains get high on challenges. From Gregory Berns’ book, Satisfaction: The Science of Finding True Fulfillment:
Any stressor, especially a physical one, results in the release of cortisol. The biochemical interaction of cortisol and dopamine in the striatum suggests that these two chemicals are involved in the achievement of satisfaction, perhaps even transcendence. Alone, neither compound can provide a state resembling satisfaction. Dopamine may be associated with transient euphoria, but you need cortisol to get that satisfying feeling. And because cortisol is released most effectively by stressful situations, the road to satisfying experiences must necessarily pass through the terrain of discomfort.
At the most basic level, people take risks because the biochemical results make them feel good. Understanding this goes a long way towards explaining obviously self-destructive risky behavior.
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