Disposed to Lose Money

Quizzical Behaviour

Most people think that game show hosts are more knowledgeable and intelligent than the people they ply with their inane questions. Obviously they’re more knowledgeable: they have the answers in front of them, but are they smarter?

Despite the obvious fact that assuming someone is smart because they can read answers off a card without falling over is blatantly absurd, this fairly straightforward observation makes little difference to studies of this behaviour, the tendency to attribute to a person certain fundamental qualities based on nothing more than the situation we find them in. As usual, this is a one way ticket to losing money.

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CEO Pay – Because They’re Worth It?

Poor Chief Executives

In the United States CEO pay dropped by an average of 2% in 2009. Still, ordinary workers needn’t shed too many tears as the average total compensation for an S&P500 CEO hovered around the $11 million mark. Perhaps more significant is the gap between the average CEO’s and the average worker’s pay. From CEO’s earning 42 times more than employees in 1980 this soared to a factor of 525 in 2000 before declining to a still eye-watering 319 times in 2009. Here in the UK we find a similar discrepancy between the boardroom and the shop floor.

This doesn’t automatically mean that CEO’s are overpaid, although there’s no evidence either way that they’re providing 319 times more value than their underlings. Indeed, it’s hard to see how you could ever disentangle the various causes and effects to determine this. What we can do, however, is look under the covers at why CEO rewards may be so high: and, as you might expect, it looks like this is less to do with performance and more to do with psychology.

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