Experts Enjoy Telling Us Why Crisis Happened
The only people who have seen their career prospects rise exponentially in recent weeks? Those "experts"—usually researchers in economics or psychology—who can explain why a big bunch of men in suits got so drunk on cash that the country is going to have the saddest Christmas ever. It must be great to wake up to emails from journalists eager for authoritative quotes about how and why the meltdown happened, especially when you can imply you warned of problems ahead, but no one listened!
Today's pearls of wisdom are more discomfiting than reassuring (but you can be sure some obscure academics won't be too worried as they revel in all the mainstream media attention). Apparently, people playing the money markets are basically no more rational than monkeys on cocaine: Seeing stocks go up activates the reward area of the brain, says assistant professor of finance Camelia M. Kuhnen, which "results in us being motivated to go grab that potentially rewarding thing." And sometimes, "the voice of reason cannot be heard, since our primitive, emotional brain takes over. Panic occurs, or mania, depending on whether we're bombarded with news about losses or about gains." The weeping traders could have told us that.
But don't think that understanding the general public's role in the carnage will help us to not repeat the same mistakes, says associate professor of management Paul Dholakia, as we're hardwired to make crappy financial decisions, the economy ("unlike science") is cyclical, and meltdowns are inevitable! So we may as well not even be listening to his advice in the first place.
