The Map and the Territory: Risk, Human Nature, and the Future of Forecasting
Greenspan, Federal Reserve Bank chairman from 1987 to 2006, investigates the financial crisis of 2008 with a focus on economic forecasting, and he sets out to understand how we got it wrong and what we can learn from our mistakes. The author determines there is something more systematic about the way people behave irrationally, especially during economic crises, and this behavior can be measured and incorporated into economic forecasting and setting economic policy. Greenspan’s considerations include behavioral imperatives (fear, optimism, etc.) and their role in rational economic behavior and market outcomes; bubbles and their differences; and the roots of the crisis in securitized U.S. subprime mortgages. He identifies too big to fail as the most problematic trend from the recent financial debacle and strongly supports modern industrial capitalism, although he notes its inherent creative destruction in a system of winners and losers that imposes hardship on workers who lose jobs and homes. This challenging, thought-provoking book sheds an important perspective on events that triggered possibly the greatest financial crisis ever. --Mary Whaley