Inside Job : Rational Choice Theory

1336 Words6 Pages
Inside Job
Inside job is the critically acclaimed documentary surrounding the global financial crisis in 2008. The film provides a detailed explanation of how and why the crisis took place. It demonstrates rational choices being made by individuals that caused a nearly global financial collapse. Through examination of rational choice theory and evidence from the film, it will explain how main characters of the film are rational actors.
Rational choice theory was developed by Cesare Beccaria and Jeremy Bentham; both were Enlightenment philosophers. The theory states that each person or rational actor weighs the cost and benefits of their action and ultimately makes their own choices. Beccaria held a pessimistic view of human nature and
…show more content…
In the early 1990s derivatives were put in place, these instruments are basically speculation or betting on stock prices, bankruptcy of companies, interest rates etc. In the early 2000 they passed a law that made derivatives unregulated so the market boomed in 2001. All these laws passed were rational choices being made by individuals they realized they can make money. They were acting out of their own self-interest and no one else. Millions of Americans lost their homes in the crash due to these subprime loans that were put in place by these big banks.
While the film did not have one specific main character it did have key players that made the crisis happening. The first being the lobbyist that lobbied to make this acts and laws pass. Those people made rational choices to have those laws passed that they knew they could make money off, acting in their own self-interest. The next is the major investment and banking companies for supplying subprime loans to Americans that they knew could not pay back. They choose to do this and to sell their clients bad deals in order to make a profit. One of the most rational actors is Henry (Hank) Paulson, the former CEO of Goldman & Sachs. He conveniently steps down as CEO to work for the Department of the Treasury right before the financial crisis. Paulson then became the leader in the government bailing out these major firms like the Lehman Brothers. This is
Get Access