A Cocksure Malcolm Gladwell Gets It Wrong

by Conor Friedersdorf

The New Yorker correspondent writes:

Since the beginning of the financial crisis, there have been two principal explanations for why so many banks made such disastrous decisions. The first is structural. Regulators did not regulate. Institutions failed to function as they should. Rules and guidelines were either inadequate or ignored. The second explanation is that Wall Street was incompetent, that the traders and investors didn’t know enough, that they made extravagant bets without understanding the consequences. But the first wave of postmortems on the crash suggests a third possibility: that the roots of Wall Street’s crisis were not structural or cognitive so much as they were psychological.

The piece proceeds to examine cocksure decision-makers, asserting similarities in the folks at 2008 financial firms and British military planners during the ill-fated invasion of Gallipoli. Both groups were overconfident to disastrous effect, Mr. Gladwell argues.

Perhaps so. But that hardly justifies his argument that the financial crisis is owed to psychological rather than structural failures!

Financial firms that systematically hires hubristic assholes are plagued by a structural failure in personnel. When a perfectly predictable, eminently human failing like overconfidence is enough to throw a whole financial regime into crisis, that is a structural flaw -- a system that only works absent the very human failings most prevalent in the industry it governs is rather worthless.

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Or take the British invasion of Gallipoli. In Mr. Gladwell's telling:

The invasion required a large-scale amphibious landing, something the British had little experience with. It then required combat against a foe dug into ravines and rocky outcroppings and hills and thickly vegetated landscapes that Cohen and Gooch call “one of the finest natural fortresses in the world.” Yet the British never bothered to draw up a formal plan of operations. The British military leadership had originally estimated that the Allies would need a hundred and fifty thousand troops to take Gallipoli. Only seventy thousand were sent.

A properly structured military planning regime always draws up a formal plan of operations -- it's built into the system! Yes, failing to do so was a psychological failure, perhaps perpetrated by irrationally overconfident commanders. But we design structures partly to guard against, mitigate and prevent psychological failures.

Mr. Gladwell wants to argue that "the roots of Wall Street’s crisis were not structural or cognitive so much as they were psychological." But these things aren't mutually exclusive explanations -- they are mutually reinforcing.