Potential human biases in the Irish banking structure : weighing risks versus incentives

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Newell, Hubert
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MSc International Banking and Finance
Dublin Business School
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This dissertation is about the searching for potential human biases in the Irish banking sector. It tries to find out how individual decision makers deal with risk versus incentives in their day to day decision making. It involves interviewing bankers in different areas and listening to their views and perspectives. From the study of the researcher in human biases we try find out is there possible scenario’s where there is less than optimal/rational decisions being made and are these decision makers aware of these biases. ‘Human biases’ comes from the relatively new study of behavioural finance and is inspired by the studies of Kahneman and Tversky in the 1970’s. It has come into mainstream thought particularly over the last 5 years because of the global financial crisis of 2008. The Research involves trying to find out the decision making process of particular actors within banking and using the literature as a reference to investigate possible areas of perceived bias. This study involved a lot of listening to the views of the interviewees and how they viewed their roles within banks. How they handled perceived risk and how did this compare to other risk takers i.e traders. We tried to keep an open view whilst interviewing as we didn’t know the ins and outs of procedures. We tried to open their eyes to potential biases to see were they aware of them, how did they judge them and did this fit with their ideas of fulfilling their jobs. We tried to bring all these together and see if there were any conclusions of this. Did incentives overly affect rational thinking? Who was the most risk conscious? Did they understand ‘group herd’ phenomenon? Had much changed since 2008? How did they explain the bank failure? And what would they do different? The researcher hopes that this study will bring more light on the day to day decision making of the bank official. How they weigh up risk versus incentives. The difficulties that lie beneath making these choices and how perceived prudent procedures might not work so well in the world. And maybe this study will show how middle to lower bankers are not really in a position to alter targets or the way in which a bank is being run. But before this study started we did not know what results would throw up and that added to the enjoyment of this research.