Straws That Tell the Wind

Abstract

This dissertation was prompted by its author’s amazement that only a handful of financial experts had read the arrival of the 2009 recession in the subprime mortgage problems in the American housing market. Despite hefty confrontations in the media between investment experts during the years leading up to the recession, it took the fall of Lehmann Brothers for the world to become aware of the effects of the subprime crisis. Such myopia is exemplary for weak signals: the strategic phenomena detected in the environment or created during interpretation, that are distant to the perceiving top-manager’s frame of reference. If top-managers perceive weak signals early enough and interpret them accurately, they can increase the resilience of their company. If they don’t, their companies run high risks. In the case of the great recession, the correct perceiving top-managers betted against mortgage-backed securities, and the rest had to take drastic measures to survive a double-dip recession. Whether or not having insights into the effective perception of weak signals can make or break companies...