The Great Crash and Future Decision Making

Will being born or living through the present financial and economic crisis affect your future decision making?  Recent work by Ulrike Malmendier and her co-authors suggests that experiences of macroeconomic instability and depression make individuals less willing to take financial risks in the future - click here.  In addition, they find that corporations managed by executives who grew up during the Great Depression were less likely to rely on debt finance and more likely to use internal finance – click here for the paper. 


The big question for me is why the experience of macroeconomic instability and depression is forgotten by subsequent generations.  As the recent crisis has demonstrated, we are all too quick to forget the lessons of the past.  One possible reason is that economic history has been removed from the curriculum in economics departments and been replaced by classes in analysis, stochastic calculus, econometrics etc..  We need more economic and financial history!

Popular Posts