Dan Ariely, a behavioral economist, believes that investors need to feel they have punished the powerful Wall Street scam artists who have over-leverage and under-regulated fleeced the public, even at our own financial expense. (Recall the ultimatum game — if someone with $100 offers you $2, you turn it down as an insult, even though it’s free money. Unless you are a monkey, and then you’ll rationally maximize gain, regardless of perceived unfairness). Yet, justice in the courts takes too long.
Perhaps the African tribunal system of Gacaca, where the victim (perhaps a survivor of genocide), the perpetrator (who may have massacred the victim’s family), and the community, come together and have a public hashing out — may be what the “market psychology” needs to get over the need for revenge and start the wheels of commerce turning again. This system was/is used, with a fair degree of success, after the Rwandan genocide. Flawed, yes, Constitutional, probably not, but better than justice delayed is justice denied.
In a way, Rep. Waxman‘s televised Congressional Oversight Committee seems to be the Gacaca-equivalent, with C-Span providing the community forum.
In the WSJ video below, Dr. Ariely explains that we have a unique opportunity to re-do the rules for our financial ecosystem, this time based on behavioral economics rather than strictly rational behavior.
(WSJ and Andy Jordan, nice job on the video.)
The problem is everyone focuses on being rational and what they want are good decisions. In order to get good decisions, one has to change their whole perspective on emotions.
Once any individual learns to use their emotions as information and to use emotion analytics on themselves, many of these problems simply regress to a non-problem level.
Thanks for your comment Denise.
I suppose we could recognize anger at being ripped off and say, “oh well, let me turn this into a non problem”. Perhaps the need for “revenge” (as noted by the behavioral economists) is satisfied by “living well is the best revenge”.
With the markets, though, until there are regulations in place for a little transparency, it’s a game of chance. There is insufficient information with which to make an informed decision (hopefully a “good decision”), regardless of one’s emotional state.