Santa Clara University Leading Behavioral Finance Professor to Discuss the Behavior That Led to the Mortgage Meltdown

Business Wire, Sept 23, 2008

SANTA CLARA, Calif. -- A financial behemoth, feeling pressure from its competitors, starts to take bigger risks in its investments, including buying shaky mortgage loans that have been packaged together. The firm never analyzes the packaged loans to see how risky they are -- instead relying on the false consolation that those securities are triple-A rated.

Is this Lehman Brothers before its recent demise? Bear Stearns? Fannie Mae or Freddie Mac?

Nope, it's UBS, a Swiss bank that was among the first to take a big writeoff - $18 billion - after falling into some common dysfunctional corporate behaviors, or "biases."

Such psychological biases - and how companies can structure themselves to avoid them - are the subject of a new book, Ending the Management Illusion, How to Drive Business Results Using the Principles of Behavioral Finance, by Hersh Shefrin, who holds the Mario L. Belotti Chair in the Department of Finance at the Leavey School of Business at Santa Clara University.

Wednesday, Sept. 23, at noon at Lucas Hall, Room 126 at Santa Clara University, Prof. Shefrin will be discussing his new book. He will address the structures that the financial firms that remain standing could implement to avoid the behavioral pitfalls that have threatened the nation's financial system.

Prof. Shefrin and his colleague Meir Statman pioneered behavioral finance, the application of psychology to finance, and continue to be leading figures in the field.

Media can contact Deborah Lohse of SCU media relations at 408-554-5121 to attend the event, or to arrange an interview with Prof. Shefrin.