Paul Wilmott has a little though experiment in the NY Times that shows why there is so little diversification on wall street. Essentially the problem is this – if everyone in your company is making the same decisions, it is in your best interest to do the same. If those decisions pay off, you all win. If they don’t, you all fail. However if you try to blaze your own trail, then it won’t matter if your decisions are better – if everyone else fails then your company goes down and it doesn’t matter if you were the one trader on your floor that came out ahead this year. (I’m sure there are some Lehman traders somewhere who made money this past year still cursing out their bad luck). If everyone does well, you’ve gained nothing, and if everyone else does well but you do poorly, you probably lose your job. In other words – being a renegade will never work to your benefit, so follow the rest of the herd and buy some more CDOs.

This entry was posted on Wednesday, February 11th, 2009 at 3:02 pm by Ari and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.