REM: van zijn troon gestoten door de financiële crisis? Irene van Staveren, International Institute of Social Studies of Erasmus University Irene van Staveren.

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1 REM: van zijn troon gestoten door de financiële crisis? Irene van Staveren, International Institute of Social Studies of Erasmus University Irene van Staveren Professor of Pluralist Development Economics, Institute of Social Studies of Erasmus University Rotterdam 8 maart 2012 – Kritische Studenten Utrecht, de Kargadoor.

2 REM, ofwel Max U voor de micro-economen, is door de financiële crisis van zijn troon gestoten, aldus de financiële media: Financial Times: “Sweep economists off their throne” The Guardian: “The Nobel Prize for economics may need its own bailout” Business Week: “What good are economists anyway?” The Economist: “Whither the efficient market hypothesis?” Money Magazine: “How to rebuild a shamed subject”

3 Is REM echt verdwenen? Institutionele inertie in economische wetenschap  Economische faculteiten en opleidingen  Economische leerboeken  Economische tijdschrijften  Economische adviesinstituties Homogene samenstelling economen  Dominante theorie  Witte mannen van middelbare leeftijd

4 Zes alternatieve inzichten in het mensbeeld van de economische actor

5 1. Experimental economics: Herbert Gintis, Samuel Bowles, Robert Boyd and Ernst Fehr (2005, MIT): “Strong reciprocity is to cooperate and punish even at a cost and even when costs cannot be expected to be recovered later.” De helft van de mensen gedraagt zich cooperatief obv rechtvaardigheid in spellen zoals het ultimatumspel of publiek-goed spel. Dit geldt ook voor non-repeated and anonymous situations, dus niet obv enige vorm van eigenbelang.

6 2. History of heterodox economics: values & irrationality  Adam Smith: Liberty, Justice and Beneficence as three main value-oriented motivations  John Maynard Keynes: self-interest (rationality) and animal spirits (instincts and emotions) and herd behavior (social animal)  Herbert Simon: bounded rationality and framing effects, such as loss-aversion  Institutional economics: social norms (asymmetric versus symmetric, formal versus informal)

7 3. Beyond happiness or Max U (Seligman): “Flourish” Positive emotion (happiness) Engagement (flow) Relationships (social bonding: social capital & social cohesion) Meaning (ethics) Accomplishment (competitiveness versus team achievement)

8 4. Perverse incentives Variabele beloning is alleen effectief bij eenvoudige repetitieve taken In complexe besluitvorming in sociale context worden financiele incentives ineffectief Variabele beloning is in complexe sociale context alleen effectief op team niveau met algemene doelstelling en meten achteraf

9 5a. Biology: animal life Frans de Waal: “All species that rely on cooperation – from elephants to wolves and people – show group loyalty and helping tendencies” Primates: –Chimpanzees help others, even in novel situations –Chimpanzees offer consolation –Bonobos are socially closer to humans than Chimpanzees at DNA level: both are less aggressive and more equally organized.

10 5b. Biology: hormones in humans  The testosterone-effect: see next slide

11 Het ‘Testosteron Effect’ wangslijm 2 x p/dag bij 17 London City Traders: testosteron en cortisol hoe hoger het testosteron s’ochtend hoe hoger de winst; zelfde voor s’middags hoe hoger de winst hoe hoger cortisol; hoe groter volatitieit hoe hoger cortisol bij groep probleem van langdurig hoog testosteron: roekeloosheid, impulsiviteit, verslavend probleem van langdurig hoog corticol: stress, angst bij besluitvorming

12 6. Socialization: gender differences in finance Gender differences in risk (lower by women) Gender differences in cooperation (stronger by women) Gender differences in behavioral adjustments (klokkenluiders; more changes in risk profile in volatile markets)

13 De ‘Lehman Sisters hypothese’:

14 De ‘Female Sheriffs of Wall Street’: Klokkenluiders: Brooksley Born (CFTC) Sheila Bear (US Fed Deposit Insurance Corporation) Samen met: Mary Shapiro (SEC) Christine Lagarde (IMF)

15 Review of relevant literature & trends (1) Risk & transaction costs  Female fund managers in US performed 65 % better than men in period 2000-2008  During mortgage crisis 2008 men lost twice as much as women did  Women take on average less risk than men, which results in higher ROI in volatile markets  Controlled for risk, women outperform men in household investment portfolios due to less un-necessary trading -> lower transaction costs than men who try to ‘beat the market’

16 Review of relevant literature & trends (2) Abstract thinking increases one’s sense of power (finding from neuropsychology) this is likely to induce one to ignore increasing risk in times of crisis women fund managers did less abstract thinking and took more time for decisions; men followed same rules as before, women reacted more contextually

17 Review of relevant literature & trends (3) Women are more cooperative than men  They react more to a changing context in experimental economics  UK listed firms have better financial performance when having more gender diversity in the board Women clean up the mess after the crisis  Three female sheriffs of Wall Street (see above + Mary Shapiro chair SEC) and female president of the IMF during euro crisis 2011  Women perceive more stress but have wider repertoire of stress management  Glass cliff: under fragile business conditions, more women were hired at the top in UK listed firms

18 Empirical study in the Netherlands Online survey, through women’s financial network on LinkedIn N = 111; 74 women (66.7%), 37 men (33.3%) December 2010-January 2011 Results are not representative: exploratory study

19 Diagnose van de crisis: individueel niveau 90%: bonussen niet meer koppelen aan korte termijn doelen 65%: zegt risico benedenwaarts aan te passen bij onrustige markten 25%: erkent achteraf dat hij/zijn meer verantwoordelijk had moeten handelen

20 Note: X 2 2007: not statistically significant; X 2 2009: p < 0.1

21 YesNoTotal Female45.954.1100 Male64.935.1100 Total52.347.7100 Table 8. Have Dutch banks become too big to fail? (%) Note: X 2 : p < 0.1

22 YesNoTotal Female97.32.7100 Male81.118.9100 Total91.98.1100 Table 9. Should more women be hired at the financial top? (%) Note: X 2 : p < 00.1