Making Markets Safer
David Tuckett, Huff Post Business
The following is excerpted from Minding the Markets: An Emotional Finance View of Financial Instability.
The financial crisis of 2008 was ruinous. It has provoked many commentaries, articles and books. But will it produce change and can this change make a difference? Is there anything much we can do to make financial markets work better and be safer?
…my argument is that what happened in the recent financial crisis (like in many before) was the product of a shift in mental states. It had its origin in a failure both to understand and to organize markets in a way that adequately controls the outbreak of risky and unrealistic decision-making states that the desire to trade financial assets must inevitably unleash. If this is right, future prevention must rely on better understanding -- taking beliefs and emotional states seriously and allowing them a much more central place in economic models and regulatory thinking -- and then using it to design and regulate the way markets are organized.
My interviews showed how markets are dangerously structured around stimulating the belief in phantastic objects, divided state thinking and groupfeel. In fact many people working in markets believe they really are phantastic objects themselves.
I consider that the organizational failures followed from the power phantastic objects exert on mental states and the way institutions have increasingly stimulated this power for advantage and then increasingly become ruled by it. Having offered exceptionality they have at least to appear to provide it. It follows that to make markets safer we have to examine the institutional context in which financial assets are first gathered up and then traded and in that context to consider steps to reduce the potential for markets to be seriously captured by phantastic objects, divided states and groupfeel.....
The core Concepts of Emotional Finance
Unconscious Phantasies: The stories (saturated with emotion) we tell ourselves in our minds about what we are doing with other people (and "objects") and what they are doing with us, of which we have only partial awareness.
Object relationship: The affective relationships of attachment and attraction we establish in our minds with "objects" -- that is people, ideas or things, of which we are only partially aware.
Phantastic Object: Subjectively very attractive "objects" (people, ideas or things) which we find highly exciting and idealize, imagining (feeling rather than thinking) they can satisfy our deepest desires, the meaning of which we are only partially aware.
Ambivalent Object Relationship: A relationship in our mind with an object to which we are quite strongly attracted by opposed feelings, typically of love and hate, of which we are only partially aware.
Divided State: An alternating incoherent state of mind marked by the possession of incompatible but strongly held beliefs and ideas; this inevitably influences our perception of reality so that at any one time a significant part of our relation to an object is not properly known (felt) by us. The aspects which are known and unknown can reverse but the momentarily unknown aspect is actively avoided and systematically ignored by our consciousness.
Groupfeel: A state of affairs where a group of people (which can be a virtual group) orient their thoughts and action to each other based on a powerful and not fully conscious wish not to be different and to feel the same.
David Tuckett is a Fellow of the Institute of Psychoanalysis and Professor at University College London, UK.
Read the article.
Read book reviews: Minding the Markets: An Emotional Finance View of Financial Instability by David Tuckett
Related publication: Hedge Funds and Unconscious Fantasy (2012)
Eshraghi, A., & Taffler, R. (2012). Hedge Funds and Unconscious Fantasy. Accounting, Auditing and Accountability, 25(8), 1244-1265.