Could the Basel Committee learn enough from puzzles and poker so as to correct their misinformation?
Sir, I refer to Tim Harford’s “What puzzles and poker can teach us about misinformation” FT Weekend December 5.
When deciding on what’s more dangerous to banks the regulators in the Basel Committee, with “expert intuition” and great emotion shouted out the “below BB-” and, for their risk weighted bank capital requirements, assigned these a 150% risk weight, and a very smallish 20% to what’s rated AAA.
But, with what type of assets can those excessive exposures that could really be dangerous to our bank systems built-up, with assets rated below BB- or with assets rated AAA?
Never ever with assets perceived as risky, always with assets perceived as safe.
Sadly, the regulators had missed their lectures on conditional probabilities.
And their “expert intuitions” are so strong that they were not able to understand the clear message sent by the 2008 AAA rated MBS.
What does Tim Harford think regulators could learn from puzzles and poker to correct their misinformation?
@PerKurowski
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