'Behavioral Economics' in the Corporate Finance Function

The business dailies double as vocabulary-enhancers these days. A bunch of new, or at least new-ish, terms crop up in articles devoted to parsing the ongoing wake of the financial crisis. These include:

• Naked short selling;
• Technically unlawful;
• Legacy loans;
• Blameball; and
• Financial scapegoating

Each term raises questions about financial decision-making. For example, if naked short selling is "technically unlawful" (and requires a new rule from the SEC to be reduced or eliminated) does "technically unlawful" also mean "acceptable"?

In a recent earnings call J.P. Morgan CFO Mike Cavanagh reportedly suggested that his firm ought to call troubled loans "legacy loans," as if they were inherited from (and could be blamed on) a bygone era of poor judgment. The legacy loans amount to roughly $18 billion of the firm's $23 billion lending portfolio.

My non-business-pages, non-fiction summer reading is stacked with books that delve into some variation of behavioral economics -- how randomness influences our decisions, how marketers influence our decisions, how we can improve our decisions about "health, wealth, and happiness" etc. It seems like behavior-related titles ought to be required reading for some corporate finance functions, particularly those who decide to use inventive language to try to reshape past decision-making.