Duhhhh!

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

A good friend, and a fellow risk consultant, Steve Lindo sent me an email
this morning talking about a recent IMF report that was quoted in a recent
issue of Bloomberg Businessweek.  The report stated that rich people react
differently than poor people to economic incentives.  Steve's insightful
response was "Duhhhh!"

The results are the report are so obvious that Steve is correct to make light
of it, but if you think for a minute, do we not make a similarly insane
assumption when we create risk rules?  Namely, do we not assume that
everyone will react to the rules and regulations in the same way?  Banks,
and bank regulators make rules assuming that everyone has the same incentive
to make sure that they are followed.  Duhhhh – they don't.   Risk
managers make rules and regulations assuming that different functions of the
organization have the same incentive to enact the rules.  Duhhhh – they
don't.   Perhaps even as parents we make assumptions that our kids will
follow the same rules and guidelines as they grow up.  Duhhhh – they
don't (and won't).

Perhaps I ought to go read the report. 
http://www.businessweek.com/articles/2013-11-07/economists-discover-the-poor-behave-differently-from-the-rich
[2]  


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[2]
http://www.businessweek.com/articles/2013-11-07/economists-discover-the-poor-behave-differently-from-the-rich