Knowing and Making

As I start this posting, I have no idea what I'm going to write about. But surely there must be something? The guy has been so pilloried that his real attributes must surely be better than his public image. Goodwin has just agreed to give back a chunk of his pension , helping the government achieve its political objective, RBS get rid of a distraction, and Goodwin himself look at least a little better than before. But looking further back, surely there were people who thought he was good at his job in 2007? With so many executives hagiographed in the business press, he must have had his turn. So what can we dig up? Start with a Google search for " Fred Goodwin achieved ". Amazingly, there is only one link: someone defending him on the grounds that the cost of his pension was only a small fraction of RBS's losses , and that by performance-related pay standards he does better than the Bank of England. Similarly, " Fred Goodwin succeeded " returns nothing, and ...

Is it true that people get more rational when they have more time to make decisions? Intuitively this would make sense. And if so, it partly explains Fred Goodwin's willingness to pay back the £2.7 million lump sum he's received from his pension pot, in return for bumping his annual pension income back up from £555,000 to £703,000. This is a rational decision on the face of it, because it equates to an annuity rate of about 5.5% - which, although it's a level which should be available in the marketplace, is better than the 4.4% he is getting on the whole pension. In which case, why did he take the cash in the first place? This is the phenomenon of hyperbolic discounting  - where people overweight the value of cash or other benefits now, compared with the future. Time discounts, of course, are perfectly rational in themselves - but people discount more sharply in the current year than if they are pre-committing themselves for future years. Possible explanations for this phe...