It is perhaps no coincidence that the last three truly systemic crises – October 1987, August 1998, and the credit crunch which commenced in 2007 – were roughly separated by a decade. Perhaps ten years is the threshold heuristic for risk managers. Models of disaster myopia have been used to explain a number of phenomena, including the tendency for drivers to slow down having witnessed an accident and then speed up once the accident has become more distant in their memory, and for people to under-insure against low frequency natural hazards such as earthquakes and floods. In the context of financial crises, disaster myopia has been used to explain the LDC debt crisis, the US savings and  1  For example, Kahneman, Slovic and Tversky (1982). BIS Review 18/2009  3  loans debacle and various commercial property crises. 2 The credit crunch of the past 18 months is but the latest in a long line of myopia-induced disasters. Such disaster myopia is not of course confined to the private sector. The official sector is just as likely to succumb to cognitive biases borne of long periods of stability. With hindsight, the stress-tests required by the authorities over the past few years were too heavily influenced by behaviour during the Golden Decade. Many risk management models developed within the private sector during the Golden Decade were, in effect, pre-programmed to induce disaster myopia. These models were often data hungry. Improvements in data and IT technology were able to feed these beasts with vast, high-frequency datasets.

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