Sunday, 16 November 2008

Bits & bobs

Simon Caulkin has another interesting-ish bit The Observer today about self-interest. He argues that building economic models and rewards in organisatons on the assumption of rational self-interest is both flawed and counter-productive:

"Self-interest contains within it the seeds of its own destruction. It drives for reward, but once rewards reach a certain size it can no longer function as a discipline. When rewards were less high, self-interest was tempered by the need to nurture the reputation a career depended on. With salaries at current stratospheric levels, however, self-interest provides no such restraint, since careers are redundant."

"Anyone who has done one big deal - or worked in the City for more than a few years - never need work again. Far from being a restraining influence, in these circumstances self-interest promotes a short-term focus on transactions that in turn amplifies its second baleful impact: increasing distrust. As anyone not blinded by fundamentalist zeal must see, the obverse of the coin of self-interest is lack of trust - and both are self-reinforcing. The swelling of self-interest is in direct proportion to the draining away of trust, the cumulative results of which are now visible all around us."

Sort of. I think the idea of rational self-interest is certainly flawed, in part because a lot of evidence shows we aren't very rational, and in part because, as I argued t'other day, I think acting in you 'self-interest' covers much more ground than just money or other material rewards. He's got a point about the career-defining deal I'm sure, which does raise the old questions about the structure of remuneration. This sort of stuff does suggest that if we want to really focus on getting the most out of the people in charge of large organisations then we ought to be looking to psychology as much as economics. But I can't see much sign of any desire to do so amongst investors. If the current situation does prove to be a bit of turning point (and I still think it will be) the this ought to be fertile territory to advance some new ideas.

Elsewhere it's interesting to see Osborne continuing to take flak from both us and his own side. His comments on Sterling don't see particularly earth-shattering to me, but at the moment it doesn't really matter. He is clearly seen as wobbling and various parties are more than willing to give him a push. At present it looks like he will survive but, as argued previously, that isn't a bad thing either as I reckon he's already got himself a negative image in the average punter's imagination. Not too much of a stretch to imagine an election poster of him in either Bullingdon Club gear or plus-fours and shotgun ensemble next to some unhelpful factoid or other.

Barclays is my other hobby horse at the moment. A quick read through the headlines today suggests that they aren't out of the woods yet by any means, as some of their large shareholders aren't taking the patently worse deal lying down. The problem is that if Barcalys pulls out they still have to pay £300m in fees to the Middle Eastern investors they have struck the deal with. Given that the deal itself is worth abut £7bn that's quite a high fee too. I still think it will go through, but more fireworks this week no doubt, and more damage to the board's reputation.

Finally, I'm nearly finished The (Mis)Behaviour of Markets by Benoit Mandelbrot (yes, he of the Mandelbrot Set) during which my interest level has reflected market moves - trending upwards for a bit before reversing. But there's some great stuff at the end where he has a pop at the idea of trying to estimate 'real' value in financial markets. I'll post up a chunk shortly.

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