tuckett - minding the markets; an emotional finance view of financial instability (2011)

[...]... behavioural economics can really contribute, either to understanding financial markets or to any really significant shift in standard economic thinking For instance, Gul and Pensendorfer (2008) question whether psychology or any other theory of motivation and human functioning is of any relevance to standard economics They make the point that behavioural economics either extends standard choice theory by including...Preface The ruinous financial crisis of 2008 has provoked many words, but not enough change, in the way financial markets are organised, in the way we understand them in economics, and in the way they are regulated Greed, corruption, trade imbalances, regulatory laxity, and panic, all frequently cited as causes, do not create behaviour on their own At the heart of the crisis was a failure to understand and... interviewed The evidence is that, on average, investment managers do not outperform a random choice of stocks and past performance of such managers is a poor guide to their future success (Kay 2003; Rhodes 2000) But this finding invites a sceptical view of the theory: given the huge number of people employed to provide and analyse information and to manage money in the financial markets, why are there... financial crises and very little useful to suggest about preventing them Before 2008, insofar as explanations were offered at all, they were that financial crises are either an error or a mirage In this view the failure of real financial markets is caused by the failure of regulators and politicians to make them work like the markets economists model (Dow 2010), or, if not, they are the result of unavoidable... irrational and in error and will not survive long and so do not matter Rational financial agents, therefore, are not the real people of everyday experience: people who dream about what they want to achieve and think as hard as they can, but are uncertain between several best courses they can imagine, or people who manifestly and frequently change their minds and their expectations of reward or loss Neither... not capture the essence of what happens in financial markets and why they produce crises Taking the uncertainty my respondents described as the major experience in financial markets, I offer an alternative way of understanding the markets, which prioritises the role of narrative and emotion and the way they influence judgement in social context Based on my observations, I find that financial markets... characteristics of financial assets (as 9780230_299856_02_cha01.indd 2 4/6/2011 8:19:05 PM The Special Characteristics of Financial Assets 3 compared to other goods and services) I will show we can quite quickly see that it is likely that any theory of trading in financial markets which leaves out uncertainty, memory, the subjective experience of time, the subjective experience of excitement and anxiety, and the. .. purchase the business from the U.K and U.S charitable institutes who had financed it and also to offer my colleagues and me ongoing and significant sums as advisers Their idea was to help to develop the company and then offer its shares to the public as what they thought could be a very successful “dotcom” One of the two men was a very experienced and successful venture capitalist working for one of the. .. properly, have coincided with an apparently opposite development in the main financial centres There we have witnessed a headlong rush to deregulation of financial markets While information-modified theories have ruled academic economics, therefore, unmodified EMH theories seem to have ruled finance and financial policy The crisis of 2008 and two questions not answered The crisis of 2008 has already received... function and the fall in bank shares caused a collapse in asset values, a loss of liquidity on an unparalleled scale, and the failure of several leading financial institutions These events in the financial market then had huge effects on world trade and the real economy and these in turn created further collapses as investors anticipated reduced asset values due to recession The loans governments then had . PM x Preface The ruinous financial crisis of 2008 has provoked many words, but not enough change, in the way financial markets are organised, in the way we understand them in economics, and in the way they. but with one version or another of the story and its emotional con- sequences getting the upper hand at any particular time and for some of the time. The Organisation of this book Chapter 1 is. which the posses- sor of the desired object plays with the omnipotent phantasy of having per- manent and exclusive access to it and all good things. Tom Wolfe describes the story in Bonfire of the