Managing Wall Street's 'Winner Effect'

Despite one meltdown after another, the denizens of high finance continue to make reckless bets. Is biology to blame?
Photo illustration by 731; Photograph by Getty images

Wall Street is not known for self-examination. Colossally bad bets and spectacular losses are more often treated as individual failures than systemic ones; risky behavior is seen as a sign of intestinal fortitude, not foolishness. In the wake of the multibillion-dollar trading loss at JPMorgan Chase—considered the best in the business at risk management—the financial industry has focused on who did what, when, and how big the losses might get. But that doesn’t explain why the firm’s traders and executives doubled down on a position that, in hindsight, looked clearly doomed.

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