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This content is taken from the Coventry University's online course, Decision-making and Risk: An Introduction. Join the course to learn more.

Skip to 0 minutes and 15 seconds This is Wall Street.

Skip to 0 minutes and 40 seconds I lost everything in the crash. My house was taken by the bank. I lost my job. I had to figure out a way to survive. The data led us to believe the subprime housing market was solid. This data was incorrect. I fooled Wall Street. I made over a billion dollars because I knew the housing market wasn’t stable. My philosophy the bigger the risk, the bigger the reward. Was the 2006 housing bubble not a big enough risk indicator that a bigger financial crisis was on the horizon. Did the big banks and government really believe the data that was being presented or did they underestimate the risks of investment, artificial credit ratings and the impact of dropping interest rates.

Skip to 1 minute and 26 seconds Let’s explore how different styles of thinking could have led to a drastically different outcome from the financial crisis. In 2004 the global economy was surging and mortgages were seen as a low-risk secure loan. Interest rates had never been lower and over 75% of all homes in the UK and US alone were being mortgaged. After James took out his mortgage in 2004 the last thing he expected was the housing bubble to pop and a global recession to hit which would cause him to foreclose four years later. Before deciding to take out a mortgage I did extensive research.

Skip to 2 minutes and 8 seconds The information provided to me by the big banks and the government data led me to believe that having a mortgage was a safe option. I approached this decision very logically. I saw it as a future investment that I could one day hand over to my kids. The mortgage banker sold me on the strongest mortgage which was backed by the most secure bank. I thought I was trusting a credible source of information. We were backing AAA rated subprime mortgages because the market and federal reserve led us to believe with the deregulation that low-risk securities were the best way to protect our customers.

Skip to 2 minutes and 50 seconds We were fooled as we trusted the data and underestimated the risk of packaging different rated mortgages together in something we called a CDO. Many people experienced the manipulation of data when they were sold very high risk interests and investments during the housing bubble which resulted in a global financial crisis. What could James and Michael have done differently? What did their decisions say about what kind of thinkers they are? In this course you will learn the differences between risk and uncertainty and the nature of data. You will apply this knowledge to assess the quality and credibility of data and you will explore these theories to get an overall grasp on data management.

Skip to 3 minutes and 33 seconds You will also look at risk management and how Kahneman’s System 1 and 2 thinking can start to affect your decision-making. How can I trust the credibility of any data if I can’t even trust official government information. I always see myself as a logical and conscious thinker but uncertainty can always sting you. I am now trying to rebuild my life. I think many brokers and government officials knew exactly what was going on. People were making so much money and the risks were so low that they chose to turn the other cheek.

Risk in daily life

Welcome to first week of this open short course. In the video, you have seen how two people can make very different decisions based on similar data because different styles of thinking affect our decision-making and how we perceive risks.

So, are the decisions that we make in our professional and personal lives as good as we think they are? In this course, you will learn about the difference between risk and uncertainty, and the nature of data. You will apply this knowledge to assess the quality and credibility of data as you explore the benefits and disadvantages of using data for decision-making.

In the second half of this course, we will look at risk management and introduce you to Kahneman’s System 1 and 2 thinking, which shows how different ways of thinking affect decision-making. You will learn more about the impact Kahneman’s thinking framework has on decision-making in the other short courses of this MBA program.

We look forward to exploring these topics with you over the next two weeks, as well as providing you with the tools to understand how you might improve your own area of practice.

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This video is from the free online course:

Decision-making and Risk: An Introduction

Coventry University