Abstract

The paper uses the example of the failure of bankers and financial managers to understand the risks of dealing in structured financial products, before the financial collapse, to investigate how people respond to crises. It focuses on whether crises cause people to challenge their habitual frames by the application of moral imagination. It is proposed that the structure of financial products and their markets triggered the use of heuristics that contributed to the underestimation of risks. It is further proposed that such framing heuristics are highly specialised to specific contexts and are part of a wider set of heuristics that people carry in their cognitive ‘adaptive toolboxes’. Consequently, it is argued, when a crisis occurs, the heuristics are not challenged, but are simply put away, and other more appropriate heuristics are put to use until a sense of normality returns, and the use of the old heuristics is resumed.