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From Ethics bank, a teaching

studies on happiness

reveal the mechanisms leading to scandals and financial crises.

After the collapse of Enron and that of Parmalat, in the middle of the global financial crisis comes the big scam Madoff: $ 50 billion up in smoke at stake on 5 percent of assets managed in Europe by the funds of funds hedge.Vale worth remembering once again what we're going wrong and how economists (not as a research frontier, but as a culture economic base). According to the standard approach the market and prices that reflect the choices of millions of savers, are able to collect all available information and therefore to accurately assess the value of financial assets. But the market fails because of imperfect information (and it is entirely reasonable and theoretically demonstrated by Grossman and Stiglitz that, if the information costs in terms of money or time, it is impossible that all investors have the same information in equilibrium). In this context, financial institutions should create and enforce the rules in the best position to motivate economic agents to behave in a way contrary to the collective. The history of finance in recent years has shown that this approach, the best of possible approaches has major flaws. Why? The fundamental error in that part of economic science has now recognized, but not

yet entered fully into the culture of joint economic, anthropological foundations is that the economic man is wrong. The problem is usually that of functional specialization and excessive incapacity to open the economy to the knowledge of other social sciences. For the traditional economic vulgata, in a man's world economic institutions and virtuous growth of remuneration of managers can attract the best talent and the regulators are able to control the self-interest of the latter is harnessed by a system of effective sanctions behavior in a socially harmful. The mechanism does not really work. Recent studies on happiness (see the review of the work of Frei and Stutzer the leading business magazine, the Journal of Economic Literature and the subsequent empirical work of Fererr-i-Carbonell, Frijters and myself) have highlighted an important psychological effect the relationship between money and happiness: money causes "addiction", that triggers a

to run between achievements and new expectations that drives people to desire more and more (technically lagged changes in income determine which offset the negative effects on happiness in large part of the positive ones made at the time when the first occurred). This would explain why in many biographies, as well as that of Madoff, we discover early virtuous and ability to create economic and social value to the community, followed by less than noble end. The principle of addiction and the resulting consequences would question another assumption taken for granted by economists. We must pay very good people who occupy important posts to avoid being tempted by corruption in order to "round up" their income. The results of studies on happiness and that of psychology teach us that if you actually paid a little too well, so that the possibility of further increases in revenue becomes difficult to remain objective in the sphere of lawful behavior, the risk is serious to an uncontrollable spiral of catching up between expectations and the new realizzazion

, resulting in research to achieve the latter through unlawful conduct. This gives new light and shows the rationality profound of a fundamental principle in finance and ethics in screening for socially responsible funds. Put a cap on the relationship between managers' salaries and the last official of the structure is not dictated by a principle harassment sadism penitential but, more simply, a rule of common sense to avoid the dynamics illustrated. Once again the principles of socially responsible rating show their good sense and their ability to better prevent financial risks that these rating agencies, regulators and the vast majority of traditional investors (who can not grasp the basic principle of finance for which high returns are accompanied by increasingly high risk) do not seem able to report prevent and catch.

Leonardo Becchetti

Professor of Economics - University of Tor Vergata and president of the Ethics Committee of Banca Etica

Archive Editorials

• undermine growth limits on energy for the bonuses - Intervention published on MF - Milano Finanza - 9/12/2008 of
• What choices to end the crisis? Andrea Di Stefano
• Roll up your sleeves for the rebirth of the real economy Fabio Salviato
• afresh from the responsibility of Fabio Salviato
  
• New models of social market economy: it is not necessary to start from scratch Leonardo Becchetti
  
• finance without a plan Andrea Baranes
• Microcredit at the crossroads between profit and solidarity intervention Mario Crosta published on August 22 MF
• yellow gold, and the future of wind Fabio Salviato
• The Board of overdraft in the spotlight on Fabio Salviato
• policy and the market: national financial and new global rules of Leonardo Becchetti
• Derivatives risk. Reviews. Mario Crosta of
• The paradox of high prices and poor farmers Leonardo Becchetti
• But to whom should the agreement ABI-Tremonti? Comment by Mario Crosta published on May 30 MF
• banks and public confidence. Mario Crosta letter published May 20 in La Repubblica
• Credit is a right for all of Fabio Salviato
• Microcredit: not only for the South of the world Ugo Biggeri
  
• Why ethical? Our diversity of Leonardo Beccchetti
• But credit is a public good? Mario Crosta of
• Our South Fabio Salviato
• Choose finance Fabio Salviato