The US Financial Crisis and Other Parallels

I only understand a fraction of the economic impact the experts predict as a result of the banking crisis in the US. And I know I am not the only one feeling this way – including some of the people that are expected to be the ones deciding how to get out of this mess.

What is really puzzling to me is how we all listen to and expect solutions from the same people who allowed this crisis to happen in the first place. How could they be trusted? They either don’t have the expertise or the integrity to be in charge with this recovery.

Unfortunately, this is not the only field where overdependence on few technical experts could be detrimental to an entire system. IT is another example where crisis of a magnitude threatening to paralyze an entire organization could occur. And most of the time we rely on the recommendations of the same people who were responsible to prevent it, and there is nothing we could do but to follow their advice to spend substantial amount of money upgrading or updating, because “the consequence of doing nothing is more costly than the alternative” – didn’t we just hear that from the financial experts of the day?

I guess this is the new way of justifying decisions of “strategic importance” – the war in Iraq (on terror) has been explained this way numerous times. In reality though is just a manipulative exploitation of the human psychology which is by nature risk seeking to gains and risk averse to losses.

Perceived Value of Small Compensation

I was wondering what is the level of compensation that would be perceived by someone as a fair reflection of contribution? After studying this for a while I concluded that 15% is the tipping point, above which people feel rewarded as opposed to just fairly compensated.

At 5% most people perceive the gesture as a correction and do not attach any rewarding value. Examples in this category include adjustments for inflation, convenience fees, acceptable margin of error etc.

10% is considered an entitlement by most people – expectation of discounts built into the price, reasonable profit margins, bonus for meeting expectations etc.

A compensation factor around 15% starts to receive a rewarding meaning: tips for waiters in a restaurant, eye catching discounts for “on sale” advertising. When it comes to a salary increase, unless it is at this level a person will interpret it as being either a simple correction (5%) or the result of a regular performance review (10%). Only at 15% the increase will be perceived as promotion related.