vague, but exciting

the porous city - commerce - investing

/

/

email me

/

about

Incentive schemes that reward successful managers with huge bonuses, without penalizing them for losing years, skew behavior towards risky investment strategies: "...appearing to create excess returns but in fact taking on hidden tail risks, which produce a steady positive return most of the time as compensation for a rare, very negative, return."

Dealbreaker's refutation is pretty unconvincing. First, I doubt that most traders have enough equity to counteract the effect described above. Second, banks being "long volatility" just means that they make more money when the market moves. That has nothing to do with the risk inherent in an investment strategy's distribution of payouts. One can have a trading strategy that capitalizes on volatility but still hedges risk effectively (I mean, it's not easy...)

My guess is that in most banks it's senior management whose equity compensation ratio is enough to make them take the long view. Therefore you'll see more blowups at poorly managed banks, or at pure-play investment vehicles.

Tech
Audio, Visual, Crowdsourcing, s60, a11y, barcamp, PIM, OS, RSS, Security, Wearables, Storage, Hardware, Data, Android, Automobile, Business, Mobile, Web analytics, Web, Development, Shopping, Javascript, Product Management, WRX, Open, Energy, MacOS, Medical, Net, Collaboration, Social

Other
Politik, Bicycling, Transportation, Games, Geography, San Francisco, Berlin, Quizzes, Friday, Feminism, Minnesota, Personal care, Toys, CrowdFlower, NYC, Statistics, Video, Clothes, Agriculture, Surfing, Life hacks, Boston, Housing, Travel, Law, Sports, History, Activism, L.A., Podcasts, Food & Drink

Music
Mixes, Reviews, Streams, Hip-hop, Mp3s, Shopping, Mailing lists, Making, Business, Videos, Musicians, House, Boston, Lyrics, L.A., Labels, Events, Booking, Good tracks, History

People
Friends, Working with, Health, Me, Gossip, ADD, Subcultures, Life hacks, Heroes, Meditation, Family, MOTAS, Weblogs, Vocations, Enemies, Stories, Exercise, Languages

Commerce
Shopping, Personal services, Investing, Management consulting, Microfinance, IP Law, Taxes, Web, Macroeconomics, Marketing and CRM, International Development, Real Estate, Insurance, Non-profit, Personal finance

Arts
Spoken Word, Visual, Comix, Animation, Events, Movies, Desktop wallpaper bait, Poetry, Rhetoric, Burning Man, Outlets, Literature, Humor, iPad bait, Sculpture

Design
Presentations, Process, IA, Algorithmic, Tools, Type, Furniture, Data visualization, Web, Architecture, User experience, Cool

Science
Environment, Statistics and Data, Networks, Psychology, Physics, Zoology

Travel
Vagabond '08, Kenya, Kingdom of Siam, Uganda

Photos
Moblog, Photos I Wish I'd Taken, Friends

Philosophy
Mind

Mathematics

One Acre Fund

Internet classic

Subscribe to this site's rss feed