Minding the Markets: Emotional Finance and Financial Instability
We recently hosted a New Era Economics seminar with influential professor David Tuckett, to discuss his new theory termed 'emotional finance' to explain financial market behaviour.
During the seminar, Professor Tuckett described his main findings based on 50 in depth interviews with fund managers, offering a deeper understanding of financial markets and investor behaviour.
Professor Tuckett discussed how markets unleash emotional responses, and he found that human emotions, storytelling and conflicts are at the heart of finance and must be acknowledged as part of their decision making process. He stressed how decisions are made in a state of uncertainty, where information is weaved into a narrative in order to come to certain decisions.
This leads to emotion being a motive in taking risks, where people often find themselves experiencing what he terms ‘divided states’, and ‘group feel’ and creating ‘phantastic objects’. This he says is what was experienced during the financial crisis: individuals perceived financial derivatives as phantastic objects, which led to divided emotional states and group feel, which eventually led to the financial crisis.
David Tuckett is a Fellow of the Institute of Psychoanalysis in London and Professor at University College London. His latest book, Minding the Markets, sets out a new theory – emotional finance – to explain financial market behaviour and the development of bubbles in asset prices in particular. Based on interviews with over 50 fund managers, Professor Tuckett shows how unconscious needs and fears, the influence of groups and the nature of uncertainty are crucial determinants of investment activity.
At this seminar, Professor Tuckett will describe some of the main findings of his research and set out the types of policy that are needed to make financial markets more stable.
Richard Saunders, Chief Executive of the Investment Managers Association (IMA), provided an initial response to Professor Tuckett before the meeting opened up for questions and discussion.
The seminar was chaired by Philip Coggan, the Buttonwood columnist of the Economist.
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