Innovation and the Global Financial Crisis: Consequences of Incompetence

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Abstract

The paper explores the development of a radical financial innovation, securitization. This innovation changed the context for all actors in the financial industry repeatedly to such a degree that even the highest regarded experts repeatedly made prediction errors. The negative effects of prediction errors have since 1980 gradually became larger until today when even a single individual decision by a portfolio manager may risk global financial mayhem. The conclusion is that financial innovation has become a lot riskier than is commonly appreciated in economic theory and practice. Our limited ability to foresee the consequences of our actions are fundamental to innovation and product development. Unintended and undesired outcomes should be acknowledged as an untapped resource for improving the net effects of innovation.
Original languageEnglish
Title of host publicationThe Proceedings of The Innovation for Financial Services Summit : Luxembourg, Grand-Duchy of Luxembourg - 21-23 September 2011
Place of PublicationLuxembourg
PublisherPublic Research Centre Henri Tudor
Publication date21.09.2011
ISBN (Print)2-919941-14-3
ISBN (Electronic)9782919941148
Publication statusPublished - 21.09.2011
MoE publication typeA4 Article in conference proceedings
EventThe Innovation for Financial Services Summit - Luxembourg, Luxembourg
Duration: 21.09.201123.09.2011

Keywords

  • 511 Economics
  • 512 Business and Management
  • KOTA2011

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    Sveiby, K-E. (2011). Innovation and the Global Financial Crisis: Consequences of Incompetence. In The Proceedings of The Innovation for Financial Services Summit: Luxembourg, Grand-Duchy of Luxembourg - 21-23 September 2011 Public Research Centre Henri Tudor .