The Global Financial Crisis and Behavioural Economics*


  • *

    The author thanks John Freebairn, Joe Isaac, Elias Khalil, Carsten Murawski, Richard Pomfret and Ross Williams for comments on an earlier draft.

Ian M. McDonald, University of Melbourne, Victoria 3010, Australia. Email:


Conventional economics, which is based on Homo economicus, cannot provide a satisfactory explanation for the global financial crisis. However, behavioural economics, and the concept of present bias, self-serving bias, ‘new era’ stories, money illusion, comparisons with reference levels and herding, can provide an explanation.