Being a student of System safety I could not ignore the public hearing that is taking place in the US Senate on Goldman’s handling of high-risk mortgage business in 2007.
The bigger is the failure or the devastation caused by an accident the more difficult it is to reconstruct the preceding events, processes and systematic factors. In the case of Goldman, its handling of highly securitized mortgage deal called Abacus, is overshadowed by even larger devastation of the financial crisis that went far beyond the Wall Street. The public outrage with the economic crisis that has been boiling for the last two years has suddenly found actual addressee, Goldman Sachs Group, thanks to the SEC’s investigation and the independent inquire by the Senate’s Permanent Subcommittee on Investigations.
Goldman’s interaction during the hearing fuels the outrage even further as it treats testimonies of its executives as part of the group’s upcoming legal battle with the SEC. By fighting against possible legal litigations and denying any wrongdoing, Goldman gets deeper into the trap of becoming the villain, who in public’s eyes is blamed for the financial crisis. On top of that, the tug of war between two parties in the Congress makes the Goldman’s hearing major strategic battle that will allow the ruling party push its bill on financial regulations.
The goal of this essay is not to defend Goldman, but to explain the phenomena of hindsight bias. As people try to make sense in such confusing environment, it is easier to focus one’s attention on specific individuals and become bias towards the end result. Sidney Dekker, the Swedish system safety expert, describes the hindsight bias in form of four different, but interrelated reactions: (1) Retrospective, (2) Counterfactual, (3) Judgmental and (4) Proximal (The Field Guide to Understanding Human Error, 2006).
People tend to react post factum and backwardly reconstruct sequence of events in a linear manner. In the aftermath of an accident, one can easily list logical arguments how and why people should have foreseen and prevented the upcoming events. We easily judge people, who failed to take proper actions. We focus on their personal shortcomings such as absence of proper training and experience, health conditions and hours of proper sleep, etc. We usually tend to focus our attention on people who happened to be closest to the accident in term of time and space. In the case of Goldman Sachs, Fabrice Tourre was designated as the sacrificial lamb, who will be slaughtered to satisfy the crowd.
Hindsight gives the investigators better and more complete information in comparison to people who made the decision prior to the failure. It provides with facts that become midpoints in the linear logic flow that the investigator reconstructs. As we walk backwards, each facts is perceive not as an “intersection point” with a list of equally valid choices, but rather as point of the process when/where incorrect decision was recorded. Hindsight bias exaggerates the importance of the recorded facts versus other events that are not directly related to the specific accident.
Specific sequence of events shapes its post-factum interpretation. It connects events in specific post factual manner. What Sidney Dekker calls tunnel vs. zigzag. The tunnel vision that the bias creates, oversimplify the history of the accident, with linear logical flow and binary (right and wrong) choices. As part of the oversimplification process, causality of events are oversimplified as well. As the result, the hindsight prevents us from differentiating between what is know after the accident and what was known by people prior and during the accidents.
What are the objectives of the Congress and the SEC? Get more popularity with the public; re-direct public dissatisfaction toward the Wall Street; take down Goldman Sachs; push for new regulations; etc? As in any other accident investigation, the public, the Congress and the SEC will focus on assigning blame on particular individual instead of focusing on learning the root causes, especially if the objectives of the blame are so vague.
No comments:
Post a Comment