Economic models fail to factor in the emotions and unconscious mental life that drive human behaviour in conditions where the future is uncertain says the study, which argues that banks and financial institutions should be as wary of ‘emotional inflation’ as they are fiscal inflation.
The paper, published in this month’s issue of the International Journal of Psychoanalysis, explores how unconscious mental life should be integrated into economic decision-making models, where emotions and ‘phantasies’ – unconscious desires, drives and motives – are among the driving forces behind market bubbles and bursts.
Visiting Professor David Tuckett, UCL Psychoanalysis Unit, says: “Feelings and unconscious ‘phantasies’ are important; it is not simply a question of being rational when trading. The market is dominated by rational and intelligent professionals, but the most attractive investments involve guesses about an uncertain future and uncertainty creates feelings. When there are exciting new investments whose outcome is unsure, the most professional investors can get caught up in the ‘everybody else is doing it, so should I’ wave which leads first to underestimating, and then after panic and the burst of a bubble, to overestimating the risks of an investment.
“Market investors’ relationships to their assets and shares are akin to love-hate relationships with our partners. Just as in a relationship where the future is unexpected, as the market fluctuates you have to be prepared to suffer uncertainty and anxiety and go through good times and bad times with your shares. You can adopt one of two frames of mind. In one, the depressive, individuals can be aware of their love and hate and gradually learn to trust and bear anxiety. In the other, the paranoid schizoid, the anxiety is not tolerated and has to be detached, so the object of love is idealised while its potential for disappointment is ‘split’ off and made unconscious.
“What happens in a bubble is that investors detach themselves from anxiety and lose touch with being cautious. More or less rationalised wishful thinking then allows them to take on much more risk than they actually realise, something about which they feel ashamed and persecuted, but rarely genuinely guilty, when a bubble bursts. Again, like falling in idealised love, at first you notice only the best qualities of your beloved, but when everything becomes real you become deflated and it is the flaws and problems that persecute you and which you blame.
“Lack of understanding of the vital role of emotion in decision-making, and the typical practices of financial institutions, make it difficult to contain emotional inflation and excessive risk-taking, particularly if it is innovative. Those who join a new and growing venture are rewarded and those who stay out are punished. Institutions and individuals don’t want to miss out and regulators are wary of stifling innovation. If other investors are doing it, clients might say ‘why aren’t you doing it too, because they’re making more money than we are’.”
Jenny Gimpel | alfa
Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik
RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung
An international research team including astronomers from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has combined radio telescopes from five continents to prove the existence of a narrow stream of material, a so-called jet, emerging from the only gravitational wave event involving two neutron stars observed so far. With its high sensitivity and excellent performance, the 100-m radio telescope in Effelsberg played an important role in the observations.
In August 2017, two neutron stars were observed colliding, producing gravitational waves that were detected by the American LIGO and European Virgo detectors....
Up to now, OLEDs have been used exclusively as a novel lighting technology for use in luminaires and lamps. However, flexible organic technology can offer much more: as an active lighting surface, it can be combined with a wide variety of materials, not just to modify but to revolutionize the functionality and design of countless existing products. To exemplify this, the Fraunhofer FEP together with the company EMDE development of light GmbH will be presenting hybrid flexible OLEDs integrated into textile designs within the EU-funded project PI-SCALE for the first time at LOPEC (March 19-21, 2019 in Munich, Germany) as examples of some of the many possible applications.
The Fraunhofer FEP, a provider of research and development services in the field of organic electronics, has long been involved in the development of...
For the first time, an international team of scientists based in Regensburg, Germany, has recorded the orbitals of single molecules in different charge states in a novel type of microscopy. The research findings are published under the title “Mapping orbital changes upon electron transfer with tunneling microscopy on insulators” in the prestigious journal “Nature”.
The building blocks of matter surrounding us are atoms and molecules. The properties of that matter, however, are often not set by these building blocks...
Scientists at the University of Konstanz identify fierce competition between the human immune system and bacterial pathogens
Cell biologists from the University of Konstanz shed light on a recent evolutionary process in the human immune system and publish their findings in the...
Laser physicists have taken snapshots of carbon molecules C₆₀ showing how they transform in intense infrared light
When carbon molecules C₆₀ are exposed to an intense infrared light, they change their ball-like structure to a more elongated version. This has now been...
11.02.2019 | Event News
30.01.2019 | Event News
16.01.2019 | Event News
22.02.2019 | Physics and Astronomy
22.02.2019 | Materials Sciences
22.02.2019 | Life Sciences