-- Financial education for individuals and stricter risk controls at banks are needed to counter the psychological biases that led to the mortgage crisis, said Yale University's Robert Shiller, a professor of behavioral economics.
"This crisis was the result of psychological contagion and speculative bubbles and also the result of poor risk management," Shiller, who is also chief economist at MacroMarkets LLC, told reporters in Tokyo. "The real problem is that we weren't managing risk."
A variety of biases in human psychology leads people to make decisions that are against their own self interest, behavioral experts including Shiller say. Behavioral economics combines the findings of psychology with economics and evolved as a challenge to the theory that markets are always efficient.
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