Saturday, February 20, 2010

Moral Hazard and selection

Mark Thoma puts together an excellent item on moral hazard and natural selection. The banks do not even have to believe that what they are doing is risky. So long as the most successful continue to rise and the relative failures throw in the towel, risk will increase. There is also a good point about the nature of beliefs and the way that they are only over-turned after sufficient weight of contrary evidence.

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