Making the Government a Corporate Risk Manager: corporate governance in default

Overcorrection is a very human failing. Having confronted a personal crisis stemming from some behavioral characteristic, human beings often shift their current behavior dramatically, at least momentarily. A trivial but instructive example is the driver who slows down well below a posted speed limit just after receiving a ticket for exceeding the posted speed limit. Of course, the overreaction doesnt last indefinitely. Behavior is too well anchored for that. Human behavior reverts to old, well-established modes in very short order. Mean reversion is not only a fundamental characteristic of markets; it is also an enduring aspect of human behavior. Continue reading