Cognitive Errors Or Unstated Assumptions?

Megan McArdle gives a report on the crisis. Here's her conclusion:

"What we need, fundamentally, is not simply stricter regulation or less greedy bankers. What we need is better economic theory of how these things play out, so that the regulators have better tools to assess and prevent systemic risk. But that's not how we're thinking right now. What we're looking for is not better tools, but someone to blame."

Here's my comment:

"The reaction of the credit markets to the failure to bailout Lehman showed that the market players were expecting a bailout. The real analysis needs to take into account the real world implications of government interventions in financial crises. Without a clear understanding of what that role will be, it's hard to know exactly what investors are relying on in making many of their decisions. If they're assuming government intervention, one can assume that their decisions are different than if they weren't.

Posted by Don the libertarian Democrat | October 7, 2008 1:32 PM"

Read the rest of her post, which focuses on the following:

"Another way to think about it is as a series of cognitive errors that afflicted everyone: investors, home buyers, lenders, regulators. They're standard cognitive errors that so far, no one has a very good way of eradicating..."

Is there a difference between cognitive errors and stupidity?

Again, we also need to know the actual assumptions that various parties in this crisis were relying on. If a government bailout is one of them, that seems very important to me to know.