People are not rational. They are master rationalizers, however. Is Wall Street using our belief that we can be ever rational against us?
Why investors are helpless against Wall Street’s secret brainwashing machine
Courtesy of Paul B. Farrell at Market Watch
Yes, the new behavioral economics is Wall Street’s secret mind-control brainwashing machine. Call it behavioral economics, psychology of investing, the new science of irrationality, it is Wall Street’s most powerful weapon because you can’t see it. They even try to make you think they’re helping you. Bull.
Behavioral economists used to be guardians of America’s 95 million Main Street investors, with an aura of integrity, professionals with a fiduciary responsibility. No more. They’re the investors’ enemy, working for Wall Street banks, for Washington politicians, operating in the shadows, like the NSA, developing tools and technologies to secretly control data, manipulate the brains of savers, voters, taxpayers and investors.
Don’t believe me? At first, I couldn’t believe the con game. Back in 2002 when Princeton psychologist Daniel Kahneman won the Nobel Prize in Economic Sciences we were hopeful. He disproved Wall Street’s oldest fraud, the myth of the “rational investor.” We cheered. Kahneman’s research that proved investors were never rational … are in fact irrational … always have been irrational … and we always will be irrational.
At first we assumed humans can change — we can still educate ourselves to be more rational. We even assumed Wall Street’s behavioral economists would help us become “less irrational.”
Fat chance. Since then, behavioral economists have been capitalizing on their newfound power to get personally richer: Getting research grants, speaking fees, university professorships and, of course, consulting contracts with Wall Street banks, Corporate America and Washington politicians.
What did we get? In recent years many of their books resemble high school level self-help “Psych 101” books with cute titles like “Freakonomics,” “Nudge,” “Sway,” “Animal Spirits,” “Blink,” “Blunder,” “Beyond Greed & Fear,” “Predictable Irrational,” all cleverly packaged for mass-market consumption, all with implied promise that their book will make you less irrational, ready to beat the Wall Street casino.
Unfortunately, since 2002, behavioral economics has failed American investors, instead of helping us, Wall Street is using behavioral economics to control and manipulate investors in five dark ways:
1. Behavioral economics promises to make you less irrational. Wrong.
What is the “promise?” Very simple: Behavioral economics promises that if investors (as well as taxpayers, voters and consumers) simply follow the advice of the new behavioral economics, they’ll be “less irrational,” more successful investors, and they’ll become richer. If you follow their advice, your 401(k) and your retirement portfolios will prosper because behavioral economists promise to make you “less irrational,” more in control of your emotional brain.
Warning, that’s never going to happen. Never. Not because all these books are based on junk science, anecdotes, big conclusions from small samples and pretty brain scans calculated to mislead you … Not because our brains have an irrational hemisphere in conflict with the rational hemisphere … And not because our brain has an irrational fear of becoming a robot like in “Blade Runner,” “Star Trek” Borg, “1984,” “Fahrenheit 451” and “Terminator.”
All that may come true, but there is a more accurate and far more dangerous reason: behavioral economics is based on two false premises: 1) humans are born rational and 2) even if we slip, we can reverse that program, educate and become “less irrational.” Wrong.
The more we learn about how irrational we really are, the more we dupe ourselves into believing we’re in control, acting rationally, even when we’re not. Remember, 88% of our investing behavior is driven by the subconscious, stuff we don’t know, can’t even admit it’s controlling us, stuff quants and behaviorists can secretly code into personality algorithms that predict our behavior in advance, so they manipulate us into making bigger, more irrational decisions. Yes, your brain really is your worst enemy.
2. Wall Street’s behavioral programs manipulate investors acting irrationally.
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Wall Street needs irrational investors. Wall Street can easily control investors using their high-tech behavioral-research data and high-frequency-trading strategies. As University of Chicago Prof. Richard Thaler, co-author of “Nudge” and author of “Misbehaving,” the new definitive history of behavioral economics, wrote in his earlier classic “Advances in Behavioral Finance,” Wall Street “needs investors who are irrational, woefully uninformed, endowed with strange preferences, or for some other reason willing to hold overpriced assets” that the Wall Street casino is selling to the investors.
Yes, Wall Street does not want rational, informed investors. Wall Street is a money machine generating hundreds of billions in annual fees, commissions, bonuses, options, all to benefit Wall Street insiders, not their 95 million Main Street investors.
Worse, Wall Street is always one step ahead of us investors, regardless of what you think you’re learning from any behavioral economics book. Be warned, they are working for Wall Street insiders, brainwashing you. What they’re doing is coding your personality, to control your decisions. Wall Street’s behavioral economists are mapping your irrational behavioral patterns, then like a CIA intelligence team secretly monitoring the enemy, their quants write algorithm codes that help Wall Street target the little guy with new “financial weapons of mass destruction” that manipulate financial markets.
3. Behavioral economists are political mercenaries, biased and partisan.
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Under all the fancy jargon, behavioral economists, in fact all economists, are biased about their political ideologies. “What Good Are Economists Anyway?” screamed an earlier BusinessWeek cover: “The rap on economists, only somewhat exaggerated, is that they are overconfident, unrealistic, and political. They claim a precision that neither their raw material nor their skill warrants. Too many assume that people behave like the mythical homo economicus, who is hyperrational and omniscient.” Pure nonsense.
“Black Swan” author Nassim Nicholas Taleb, warns that the 2008 crash will happen again unless we “build a society that doesn’t depend on forecasts by idiotic economists.” No, it’ll never happen. BusinessWeek made one point crystal clear: All economists, including neuroeconomists, are political animals whose opinions are up for sale: In short, they are political mercenaries for hire who can “prove” any hair-brained theory a politico wants.
4. Behaviorists purposely mislead investors, helping rich get richer.
In congressional testimony during the 2008 Crash, Alan Greenspan admitted that the Ayn Rand mutant capitalism ideology driving Reaganomics and the Republican Party had failed America: “I made a mistake in presuming that the self interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity.” That was a huge “flaw in the model that defined how the world works.”
Greenspan admitted our leaders failed us miserably: “Those of us who have looked to the self interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” Greenspan told Congress. Unregulated markets “held sway for decades” … then “the whole intellectual edifice, however, collapsed.” Noticeably absent: Protecting the public was not in the Fed’s equation.
5. Behavioral economics is at best a misleading sales gimmick.
Pretty colorful MRI brain scans are just window dressing, like color shots of sexy models in bikinis selling muscle cars, alcohol, cigarettes. The scam is subtle, misleading and dangerous. A few years after Kahneman’s Nobel I ran across a study by Yale University Prof. D. S. Weisberg dealing with the magical allure of behavioral economics.
Weisberg used two test groups, asked them to evaluate explanations of psychological reports. They were poorly written with incorrect references. Most readers could easily figure out what was wrong … except in the reviews where the good professor added a few sentences crediting the explanations to some irrelevant neuroscientific studies alluding to the cause to some part of the brain. Adding the bogus scientific references turned the bad reports into good ones, for both experts and amateur readers.
Yes, the human brain really is that easy to manipulate: All this was back before the meltdown of the credit bubble built collectively by Wall Street’s army of behavioral economists, managers, quants, ad executives, demographers and statisticians. Today they forget the crash, as they keep developing new ways to penetrate all the defensive tips you believe you got from reading all those useless books about behavioral economics.
