Why traders ignore risks and go full speed ahead

Incentives often drive excessive risk-taking, while caution is punished, Vincent Kaminski argues

Many times in my career, I have seen traders and business leaders flying towards risk like moths to a flame. When some of them eventually blow up, recriminations fly. After all, it is easy to condemn such behaviour in hindsight and accuse the failed risk-takers of recklessness, incompetence and addiction to speculation.

There is, however, a more charitable explanation for why certain market players act this way, which also offers us an opportunity to look critically at the foundations of the