Rational Irrationality in Wall Street

Economic man is coined in economics means a rational man. Rationality has a broad meaning: intellectuality, making meaningful judgement and etc. But following definition makes better sense "rationality is the triumph of the rational over the animal side of man." Current issues in Wall Street don't make sense in terms of rationality, well one feature of current issue makes sense:maximizing the corporate profit.

Recently, the Senators of the U.S have questioned the CEO and Fabirre Tau. In my opinion it's the set back of the capitalism which relies on economic man concept. The bank managers would be under pressure if they are lagging behind their peers, hence managers do all possible ways to boost the profit in short-term. Imagine there are only two banks in an economy, both of them oriented to long-term profitability. And, one of them tries to outperform its peer, and focuses on short-term profit by taking excessive risk and putting clients' money in risk. The second bank's shareholders makes pressure to management to increase the bank profitability, scared of loosing their job and career, the bank managers also takes risky positions. As we can see, simple game theory creates economic instability, both banks are involved in risky investments and collapse of market is predictable. The same case happened in the U.S, the banking holding were competing and trying to maximize their profit. Eventually the whole financial system was on brink of collapse, the Fed saved them, otherwise we were witness of chaos and collapsed the U.S economy.

If participants in an economy do make decisions based on game theory, they need to be controlled heavily, in order to avoid from next global financial crisis.