Logic isn’t always the best answer

By the Heath Brothers

This latest economic slap shot to the head is the byproduct of a deeply flawed premise that many economists still cling to: people and companies will make rational decisions in their own best interests.

Many bankers clung to their analytical models, which "proved" that their investments would be okay even if default rates reached historically high levels. Unfortunately, because it had never occurred to the bankers of yesteryear to give $500,000 loans to minimum-wage workers, the historical models weren't all that accurate.

You've got to love the logic, though: Historically, the most weight I've ever gained in a year was 2 pounds, so I might as well start eating a quart of Ben & Jerry's every day for breakfast.

As it turns out, if bank executives had applied more brain science to their business plans and less magic math, they could have easily avoided the collapse.

Read the Heath Brothers take on this at Fast Company.

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