to think nimbly, embrace diversity : the way we think, our backgrounds and areas of expertise, our experiences — including, but certainly not limited to, the ways that people treat us because of where we were born, our race, gender, pedigree, sexual orientation — and even our values. diversity can help address the problem of silos that i described earlier. the problem with silos is not specialization, but blind spots. at the new york fed, i don ’ t want economists making legal judgments, or lawyers performing economic analyses. but i very much want lawyers and economists to provide insights to each other based on their specialties. more generally, inviting outside views helps avoid common, human biases. 4 “ groupthink ” is one well - documented bias. another is the “ endowment effect ” — placing greater value on what one already has versus what one does not. what links these phenomena is an excessive preference for the status quo. it is remarkable how often problems in financial firms can be overlooked because of a sense that are they part of a normal, business - as - usual state of affairs. a diversity of inputs can help us see the flaws in what we accept as normal. diversity is a frequent topic of conversation, but it is not easy. my view is that, like other ethics, diversity is a habit that takes practice. as first line of defense professionals, try to develop the habit of seeking out other points of view. diverse points of view may come from junior employees in your line of business. they may also come from hr professionals, sociologists and psychologists, communications experts, even lawyers. for financial firms, prudential supervisors can also contribute to a diversity of viewpoints. their horizontal view of practices across firms not only helps promote a more stable financial system, but also helps firms identify problem areas. a diverse set of views, professional training, and life experience may help you see shortcomings in your risk management framework — even in the three lines of defense model. just because three lines of defense is a sensible way to manage risk does not mean it is perfect — no model is. a diverse set of inputs will help you figure out how to apply more effectively the three lines of 2 / 7 bis central bankers'speeches defense in your organization. choice architecture i recommend as well that you pay attention to choice architecture in deciding how best to construct a first line of defense. by “ choice architecture, ” i mean the broad array of options that

simon m potter : improving survey measures of inflation expectations speech by mr simon m potter, executive vice president of the federal reserve bank of new york, at the forecasters club of new york, new york city, 30 march 2011. wilbert van der klaauw, giorgio topa, robert rich, olivier armantier, basit zafar and joseph tracy. the results from the new york fed – american life panel survey i will discuss today reflect data collected through mid - march 2011. papers containing more detail on the research i have summarized today can be found on the new york fed website. * * * good afternoon. it is a pleasure to be here today to talk with you about some of the new york fed ’ s ongoing research on the measurement of household inflation expectations. the views expressed are mine and do not necessarily reflect those of the federal reserve bank of new york or the federal reserve system. that said, i want to acknowledge my colleagues in the research group who have pushed our research on inflation expectations forward. expectations, and in particular inflation expectations, play a key role in the conduct of modern monetary policy. expectations drive people ’ s behavior by influencing a wide range of economic decisions such as saving, investment, purchases of durable goods and wage negotiations. these decisions in turn affect real economic activity and actual inflation. as a result, inflation expectations represent an important link in the monetary transmission mechanism – especially through the term structure of interest rates – and greatly influence the central bank ’ s ability to achieve price stability. it is crucial for a central bank to monitor inflation expectations, making sure that they remain well anchored and consistent with policy objectives. since the economy is constantly buffeted by unanticipated shocks, short - term inflation expectations should reflect the effects of these shocks. for example, if energy prices increase suddenly due to a supply disruption, short - term inflation expectations should move up. this is completely consistent with medium - term price stability, if at the same time, forward inflation expectations – that is, expectations of inflation for after the supply disruption ends – do not move. this stability of longer - term inflation expectations in the face of movements in short - term inflation expectations is the hallmark of sound, effective and credible monetary policy. in standard macroeconomic models it is trivial to measure inflation expectations : under the rational expectations assumption, any economic agent in the model could produce the unique inflation expectation for any horizon. in the real world, central banks must rely on various indirect approaches to measure