Investors get carried away with excitement and wishful 'phantasies' as the stock market soars, suppressing negative emotions which would otherwise warn them of the high risk of what they are doing, according to a new study led by UCL (University College London). Economic models fail to factor in the emotions and unconscious mental life that drive human behaviour in conditions where the future is uncertain says the study, which argues that banks and financial institutions should be as wary of 'emotional inflation' as they are fiscal inflation.
The paper, published in this month's issue of the International Journal of Psychoanalysis, explores how unconscious mental life should be integrated into economic decision-making models, where emotions and 'phantasies' - unconscious desires, drives and motives - are among the driving forces behind market bubbles and bursts.
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Comment: It seems that those who are busy manipulating the market are quite aware of this 'lack of understanding of the vital role of emotion in decision-making' and use it for their own advantage.