The Value of Defying Conventional Thinking

Question: What is the value of defying conventional thinking?

Nouriel Roubini:  Well you know usually critical thinking and not always accepting the conventional wisdom.  Having lateral thinking or contrarian thinking is useful in kind of any discipline. But in the case of the economic profession thinking about the crisis, I think there is also a bit of a political economy of this irrational exuberance.  A lot of the sell-side research that is done by investment banks and other banks has all the biases of sell-side research.  It is being paid by those who are underwriting securities or even if there are Chinese walls it’s very hard to be independent and speak the truth even if you can be very smart. So a lot of non-independent research. And one of the advantages of my firm Roubini Global Economics is that we don’t trade.  We don’t manage assets.  Our reputation is based on being right, and only on that.  We’re never talking our book. So if you have truly independent research, it’s more likely to get things right than research that is not really independent that has all the biases we know.  For what concerns policymakers, policymakers will never be the first one to "cry wolf" or scream fire in a crowded theater because if they were warnings early on about stuff then there will be a panic. So whether it’s the Fed or the Treasury or the IMF of course you have to cautious.  Myself, when I was in government for two years I could not speak as freely as I do when I'm an independent thinker. And so there is that bias. And then economists where are in academia are sometimes co-opted by mainstream views because it’s easier to succeed career-wise and otherwise by taking mainstream views rather than having lateral thinking as well, so there are systems of incentives and rewards that people have that lead to these kind of herding behavior both in the financial market and also into the collective thinking as well.

Recorded November 30, 2010
Interviewed by Peter Hopkins

It’s easier to succeed in your career by taking mainstream views rather than thinking independently—but that doesn’t mean you’ll be right.

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