Economic Psychology

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Economic Psychology

How and why markets aren't rational. Navigational tips for charting the Bermuda Triangle of human economic behavior.




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A Discovery
 
Then, one day during my lunch hour I happened to wander into a bookstore. On the shelf I saw, staring at me, a book so extravagantly and flamboyantly titled that I bought it on the spot, even though I did not yet know what it was about. That book was "Extraordinary Popular Delusions and the Madness of Crowds," by Charles MacKay, LL.D.

In some cases, you can judge a book by its cover. This book is great! Originally published in 1841, it concerns the various financial bubbles, crazes, and scandals that have taken hold throughout history, wherein otherwise sensible people fall prey to a financial logic that can best be described as delusional. In this state, they invest their resources in speculative ventures that are highly dubious, even as it becomes apparent that the 'vision' is actually a mirage. Ultimately, the castle in the sky collapses of its own weight.....only to resurface in another form in another place and time. Sound familiar?




Gremlin Post
 
234 (Gremlins are out and about. I have no idea where this came from and/or what it means).




Intro. to my Tale
 
I first became interested in this subject in about 1985. A newly minted Ph.D in psychology, I needed to pay my impressively large student loans. Thus, instead of an taking an academic or clinical job, which paid a pittance, I entered the exciting world of commerce. My job was to manage all market research for commercial, consumer, and trust groups at a large regional bank. Although the prospect of researching peoples' feelings about the pricing of their checking accounts seemed a deadly one, I was surprised to learn that as with other relationships, those involving the exchange of money carried a huge amount of emotional baggage. In fact, on average, people--even sober, 'rational' businesspeople--did all kinds of things that made no sense. And, they did so in characteristic ways.




Episode one, where I decide to take the plunge.
 
It's about time to bring a halt to this procrastination.