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Dan Ariely: Why The Next Market Downturn May Quickly Become A Full-Blown Panic
Submitted by Adam Taggart via PeakProsperity.com,
Behavioral economist and author of Predictably Irrational Dan Ariely returns to explain the science underlying the continued mismanagement and mal-investment within our financial system, despite 7 years of opportunity to learn from and address the causal factors of the Great Recession.
Behavioral science shows we are our own worst enemies in this story. In a realm where everything is so quantifiable, measurable and trackable, one would expect exceptionally good decision-making. But it's our human wiring, our proclivity for seeing things as we want them to be rather than as they truly are, that makes us vulnerable to influences we often aren't even conscious of. And the bad decisions -- and bad outcomes -- ensue:
For me, as somebody interested in human behavior, there are two elements that worry me a lot. The first one is Conflicts of interest.
Conflicts of interest is one of those things that get to us without us realizing how powerful it is. Imagine that you invite me to dinner, and you buy me a beer and a sandwich and we talk more and we become friends. To what degree am I going to be able to see the world in an objective way without taking your perspective into account? It turns out conflicts of interest are wonderful because they allow us to create friendship really quite quickly. You can buy someone a beer and a sandwich and they become your friend to some degree. Once you marry this with a complex system like the financial system, all of a sudden some not-so-good things can happen.
I think we really haven't done much to address conflicts of interest in our financial system -- there are lots of places where people get paid in all kinds of ways that have conflicts of interest. There are companies that have divisions within them that create tremendous conflicts of interest. And human nature doesn't help. What happens is that you look at yourself and you ask: Do I have conflicts of interest? You say: No. Of course, not. I evaluate everything objectively; therefore, we don't need regulation. But I think we do, and actually to a much higher degree.
The second element that bothers me about which we have done to little is Trust. There are people who are active in the financial system and they understand it better. And there are people who are not. The people who are not have experienced this tremendous devastation. Many people lost lots of money, especially people close to retirement. Many people pulled out their money and basically have lost trust. Now the question is: Under what conditions will people regain this lost trust? This is extremely important for the financial system's long-term viability. If you think about the financial system as a way to accumulate wealth and be able to retire securely and so on, I think we've lost some of the capacity of that system to serve that function, because people are just not trusting anything.
Imagine if we have another beginning of a catastrophe happening, not something as big as we had, but something smaller. Is people's sensitivity right now is going to be so high that they're going to panic very quickly? I think the answer is: Yes. So we haven't done much to eliminate conflicts of interest, and we haven't done anything to earn back trust. And because of that, I deeply worry.
Click the play button below to listen to Chris' interview with Dan Ariely (41m:53s)
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I don’t know but it sounded like this guy wanted more collectivism, the solutions were in the government and how do we invest more in academia. Academia is no more of a growth engine than the oil industry has been prior to the major drop, and housing was before that. Education is just a bubble that has yet to burst. There has been more and more money thrown at education and that results in SOME real production, just like the money thrown at the oil industry caused more production, and the money thrown at real estate caused real houses to be built. But in all cases it was mis-allocation of resources due to incorrectly priced money (low interest rates).
Here is a great example of the root cause analysis in oil; the same could be said of academia. He didn’t realize how ironic it was considering his earlier talk about conflicts of interest.
I don't know which is more naive, to believe that markets will NEVER GO DOWN, or to believe that MARKETS CAN GO DOWN. Did the Zimbabwe stock market go down? How about Weimar Germany, did that market crash?
That's strange; I didn't think computer trading algorithms were capable of 'panic'...
All good algorithms have a panic subroutine written into their code. Count on it.
What’s the big deal?
Anything goes while the Prozac flows.
The author believes that conflicts of interest poison some percentage of economic transactions and therefore more regulation is required but he leaves this question unanswered: what stops conflicts of interest from effecting the regulations and the regulators who enforce them thereby poisoning the entire system from the top down?
That's the perennial question which the statists have never been able to answer.
The author also doesn't seem to realize that even if one or more parties to a transaction are motivated by conflicted interest the fact remains that all parties who willing agree to the terms of the transaction do so because they see those terms to be good for them. So what's all the hubbub, bub?
Stock Market Crash in 2015 is Coming, Despite Widespread Bullishness
They will be soon, and you'll need a bigger scooper to pull that load out of your pants.
Different context now flacon, imvho. TPTB will control it. They will take it up maintain it or tank it depending on their agenda. Thus my utmost distrust of this market.
The market goes down, really down, when those running the game think all of the dumb money, the money on the sidelines, is in. This is not about money. This is about real assets and POWER. The collapse of the stock market would precipitate the fall of most others, while the muppets are desperately trying to get their worthless fiat out of the fire. Assets, real assets, not this paper crap, will fall in fiat value as many liquidate to cover. Those owning the debt will make clean sweep while the rest of us are clinging to our fiat and bullets.
It will be interesting.
This guy happens to be one of the most interesting commentators out there. Watch some of his courses and learn something.
I didn't red ya' bill, but this fella has too many pre-packaged phrases for me to give him credence. He has CFR written all over him.
Beware.
It did, and you are correct. The first two paragraphs without being able to call this shit-show what it is (Abject Greed, Graft and Corruption on a scale never seen before), told one all he needed to know. I just don't get these mealy-mouthed equivocators unable to call something for what it is.
dan arielly is full of shit mostly. he's selling his psycho-cognitive bullshit about explaining how moral hazard becomes sytemic and nobody is to blame when everyone is.
he is above all selling academic pop thought to the masses regarding financial stuff. and it's tired and old crap . he even makes cute videos with drawings sometimes to suck into his audience to refuse to quesiton is absurd assumptions.
Eventually, one of these articles will be right...could be 20 years from now.
Nothing a new fake $5 trillion can't fix.
One day ill wake up to a real panic. Then I'll look at Gold jumping North by the hundreds. Till then, stack a roo.
Honest question(s) for you and any other dedicated stacker...
What happens when gold does start to pop?
Are you going to take the money and run?
Or ignore the frantic bidding and keep the lovely darlings under the pillow?
Assuming this to be the case, what difference does the price actually make?
Is there a price that will be too good to pass up and, if so, what would your general estimate of it be?
Everything is temporary. What do you envision as your estate? I measure PMs not by price in fiat, but by the crossing price of what I am saving for. But I also consider them financial system insurance. And view cheaper insurance as a good thing. I also view them as their own currency. PMs are not a trade.
Your presumptions are premised on the ability to either legally use gold as money, or the lack of a legal structure to prohibit it. The first case is not likely as our monetary system is not our problem...it is our government and its laws and their interpretation's. The second does not bode for any of us for a world both star ing and well armed will be no fun.
But what is the answer to Tarabel's question? For me I would think about converting some PM's to unlevered cah flowing apartment blocks if Pm's increased 3 or 4 times from current prices. If combined with a real estate correction all the better. But holding paper is off limits. But I will never fully divest of PM's. I like 65 percent apartments and 35 percent PM's.
Good luck with that when it all crashes and the renters can't pay. Ever read about Germany in the 30s? Wealthy Jews owned the apartment houses and evicted people. Of course they weren't the ones sent to concentration camps but they were part of the reason for the lack of sympathy.
The same could be asked of any traceable commodity, ETF or paper asset. When wiill you sell your ________?
I'll trade my shiny stack for land only.
Pity I can't seem to find it right now, it's gotten lost somewhere.
Some say you should use a portion of your stack as collateral against a loan to buy hard asetts.
Better tax situation that way.
I am $2,000 an acre bid all day for Indiana corn acreage.
Dog
Enough of this logic. It does nothing but hide the facts of FED software and infinite fiat. BTFD.
No need to panic...the FED will buy the dip...nothing to worry about...move along.
The South was right!
Be careful what you wish for. Slavery is making a big comeback in this world, and your name is not on the list of prospective whip crackers.
What color is your whip Bossman?
You can bet the fall and popper will be red.
http://www.snakewhip.com/catalog1/p13/*-The-anatomy-of-a-whip./pages.html
if [alltime high] = buy;
if [< alltime high] = borrow more;
endif: printer_off;
You know, nowadays I see a whole lot of people asking questions about what they used to believe.
Wisdom is the appreciation of all that we do not know. Something the young cannot appreciate as they truly do know it all. Its all about asking yourself the correct questions. Sometimes the answers are less important than the questions.
Knowledge is flour; wisdom is bread.
There is no spoon.
Bears' hope springs eternal ...
What the hell does any other person now know worth discussing? The Robots have the initiative,
Stock buybacks, no panic there. Fed managing psychological factors on a daily basis, no panic there. Media presenting the same ducks and bunnies view of economy.
The average investor entrusts the tactical and strategic direction to those who 'know better' vis a vis 401K's and other managed retirement plans. They have as much control over the scope and direction of the equity market as their house pets do over their food supply. Incidentally, the average American has about as much control over their food supply as do their house pets.
The crisis of 2008 scared the powers that be to the core. They are getting better at controlling the outcome because they have peered over the abyss. This market may yet tank, but panic may not be as weighty a catalyst as it once was.
I have zero conflicts of interest since I don't like people and I only have trust in my dog and my cat.
At one time, I never understood why people would leave their estate or fortune to their dog / cat / goldfish / pet.
Now I completely understand.
Don't trust the cat.
http://www.huffingtonpost.com/2014/01/07/cats-facts-jerks_n_4520552.html
"Dan Ariely: Why The Next Market Downturn May Quickly Become A Full-Blown Panic"
OR
WHY I Change My Underwear!
"...the science underlying the continued mismanagement and mal-investment within our financial system, despite 7 years of opportunity to learn from and address the causal factors of the Great Recession."
Actually this is a great start... don't listen the previous comment.
"there are lots of places where people get paid in all kinds of ways that have conflicts of interest."
"Many people lost lots of money, especially people close to retirement. Many people pulled out their money and basically have lost trust."
- These are Excellent Points to Explore
- All Branches of Federal Govt
- All Levels of Professional Employees
- Judicial Courts, Medical Doctors, Drug Testing, EPA, Utilities, Military Base Studies for Privatization, Post Office Privatization, Use of Private Military Armies and Contractors, Spending Increases and New Programs by Federal Govt & Congress, ... US Taxpayer funds wasted on Govt Studies by CBO, GAO, and of course the whole budgets for Financial Regulation and Anti-Trust by Big Corporations who get a 'free pass' since they are designated as "National Assets" for National Security... FBI, SEC, FTC, FINRA, FDIC, OCC
Oh sorry. I have to go my hair needs washing. S/
Dan Ariely: He is a Human Being, He Cares about the many Human Issues, He attempts to cross International Boundaries to address Common Issues of People, and Probably he is Exerting honest Efforts to Do this Work.
Governance is very Complicated, has many power players & Interest Groups... I think Dan Ariely struggles to present a Coherent Narrative about how we all can begin to address the problems of Power.
Sincerely, Teethvillage.
?
the problem with the sustained crash idea is the money has no where to go so it won't go. the only way to get a crash is actual destruction of real assets because the fix is in for a financial crash. this is self fulfilling prophecy because financial manipulation and the hubris of empire have always led to a showdown of massive capacity destruction and a restart.
humans, people, lulz
there is no market, there is only the fed
I've already seen this happen to many people so I know the pattern.
We all agree there has been a huge transfer of wealth in this country.
What I find ludicrous are those who believe at this point in time that *they* are wealthy and they can not even fathom the idea that their own wealth will soon be transferred, as well.
And here's the kicker: That wealth won't be transferred downstairs into the streets to be redistributed to the poor.
No, no, no...That wealth will be all be transferred directly upstairs, metaphorically speaking.
Hey get your own icon
Koala fight?
http://www.theguardian.com/world/video/2015/mar/16/koalas-fight-battle-w...
Hey I never noticed. Sorry bout that. Looks like you were here before me so I'll get a new one. How's that you old grump?
There's room for more than one koala!
The more koalas the merrier.
Not much merry about Schopenahauer, however.
Current Account Balance: Total Trade of Goods for the United States©, 2013: -703,911,000,000 US Dollars,
Sum Over Component Sub-periods (2013 was last data, USA ranked 193 out of 193 Countries, Dead Last), Annual, Not Seasonally Adjusted, BPBLTD01USA637S, Updated: 2014-04-03
http://research.stlouisfed.org/fred2/series/BPBLTD01USA637S
https://www.cia.gov/library/publications/the-world-factbook/rankorder/21...
zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
lol
Not much psychology involved in bidding asset prices to the moon, raise a ton of cash and stand buy while waiting for the correction.
Still...you have to account for inflation and "Government intervention."
Historically (post World War II) Federal Government has intervened aggressively to engage in "counter cyclical" economic policies.
2008 was no exception.
Interestingly though yields have in fact plunged and the recovery has stalled...just not as bad as in Europe or Japan.
Not for lack of inflation either.
Commodity prices have by and large been obliterated as well which is not "normative."
Perhaps everyone has been too reliant on the markets as the "bailout mechanism"?
Certainly Alan Greenspan has been proven wrong that was is good for Wall Street is good for America. Might be true of the Banks as well interestingly.
The Dow Jones Industrial Average is on the verge of collapse...
http://www.globaldeflationnews.com/dow-jones-industrial-averageelliott-w...
Which means it is going to rip your face off going higher after the Fed panic steps in to put a $$$Tourniquet on it at the first 10 - 15% slide, if they even let it go that far.
' Welcome to the elevator ride, in Disneys' "Haunted Mansion".
There's a ghost in every car BTFD... Booo--- Yahhh----
I think we're going to see some violent market moves over the next 3-4 weeks.
I can't wait for the Post Game analysis you know when they explain everything show all the warning signs and why it all happened clear as a bell except nobody got out of the way of the speeding train.. they say the biggest lesson for people to realize during the 2008 crisis was that people who should have known better, had no clue.. that was the lesson, and obviously most didn't learn it.
"Behavioral economist and author of Predictably Irrational Dan Ariely returns to explain the science underlying the continued mismanagement and mal-investment within our financial system, despite 7 years of opportunity to learn from and address the causal factors of the Great Recession."
Can we PLEASE stop calling it the 'Great Recession', and call it what it is? We were never cured of the ills that caused the Great Depression, we were simply able to mask the symptoms, Every now and then the disease would reappear, and we'd treat it with a massive dose of the latest and greatest antibotic. But now the resistence has built to the point where we are out of options.
A debt superbug?
One that'll make Captain Tripps look like a common cold.
I don't care, I sold the last of my Costco stock a while a go. My father is still drinking the kool-aid, and is mad as hell at me for not finding a good paying job; this is a guy that took an early retirement from Chrysler; he got 50K in cash + a vehicle worth 45K... he would have got much more, but he had a tendency to flirt with his boss's wives, and then often times called them cocksuckers, and all sorts of bad names in group meetings; times have changed!
What 45k car did he receive? Sounds like your father acquired a labor legacy cost model. Just curious, if it was a channel stuffing year.
BTW, the last Chrysler that I owned, had a electric window motor problem; it would not work; i had it replaced before the warranty ran out, and then within 3 months it broke again! Chrysler still has this problem; meaning they have done nothing to address the problem.
Netflix could go to $1 million a share, problem is finding buyers that will pay $1 million a share.
At that point one share of Netflix might buy you a cup of coffee.
Anybody else notice Klondike bars recently? You still get six but the individual bars are half the thickness as they used to be. Almost like getting a York as an ice cream bar. Same price, half the ice cream. 100% stealth inflation.
The incredible shrinking burger has appeared as well. The patty at Five Guys is smaller and now costs $4.50 for a single. Two years ago it was $2.60 for a single. The cost isn't double, but with the smaller size it might as well be.
Boston Market is hysterical. The chicken is about the size of your hand and costs $10 for a half chicken meal. It isn't exactly a great restaurant, slightly upscale fast food and it costs more than a lot of good sit down restaurants.
I've talked about toys before. 30% increases from last year. Sure major things like cars and televisions haven't jumped, but everything you really need to buy more than once every decade has skyrocketed. To the point of being comical. When health insurance costs more than a $200k house per month, you got to throw your hands in the air and say, "Fuck it, I'm out!"
They are shrinking serving sizes for our health.
None of this matters as it is as it always has been. Our lives are a series of choices, most of which we make poorly, but hopefully we at least have fun while doing it. The real problem is the socialization of the costs of our choices, forcing us all to pay for the bad decisions of others. Its called insurance, and government is the biggest insurance scam of them all. I do find it curious how auto insurance companies are now advertising their monitoring systems as a means of allowing "safe" drivers to not pay for the statistical averaging of the general population. It will be interesting if this occurs in the health insurance industry. It has always been the fear that genetic testing for disease predispositions would be used against us, but what of our monitored diet and activities?
Socialism always initially offers universal everything until the bills must be paid and then their beloved "efficiency" takes hold and they start parsing who really needs and deserves the benefits of collectivism and who is just not contributing or offering enough "value" to the system and therefor must be "eliminated".
All this shit would occur naturally, but why would they allow nature to rule when they want the job. Everyone wants to play God.
What's a market? Panic at the Krogers?
Not until the fat lady, Yellen, sings
Now how long has this guy been predicting the end of the world, huh ZH?
If the market keeps fkn around at this level it may rollover. Again. I thought for sure it would float thru this time, seems to be indecisive about it.
What reason is there to believe that govt employees can or do make better decisions than private citizens? Essentially, regulation is control of competent, productive people by failures, by those who produce little or nothing. The market is the best regulator of all. Incompetents lose their money to more competent people, which is the way it should be.
Were you asleep in 2008?
We de-regulated banks and trusted bankers and they rigged every market they could.
We removed the 1930s legislation designed to prevent another 1929 and they did it again in 2008.
We can thank the bankers for reminding us of the necessity of legislation and why it was enacted in the first place.
There is lots of financial regulation because bankers are incompetent, unscrupulous and entirely without morals.
The problem that this government creates with their laws is the illusion of control and protection. When people go to a bank and their only concern is the service fees and interest rates, rather than if their money is safe, our government, with all of their supposed regulations and FDIC, has created an ILLUSION of security that does not exist. The banker's gun to the head of our law makers was a reminder to them that this artifice was in danger, that their powers of protection were at risk of collapse. That is what all this shit is about...a crisis of confidence, a confidence sustained by nothing but bullshit. Almost every financial crisis we have had has been in the face of regulation. Remember the savings and loan debacle? The Dot Com bust?
We need relatively few rules that the typical person can understand and the bulk of government force should be to provide transparency so we can correctly assess risk, rather than to hide and obscure it with layers of regulations and certifications and ratings that are ultimately meaningless. Most of the financial traders in the world would close tomorrow if they did not have this regulation and ratings system to obscure their lying bullshit. We all know it is corrupt yet many are still trying to pull wealth from it in a last ditch effort to profit. We cannot be surprised by our economic collapse when so many are intent on extracting wealth from it while contributing NOTHING in its exchange.
Even back in the 1600s, when there was very little regulation, the traders of Holland got over-excited about the new Tulips.
In the 1990's traders got over excited about the new internet, little changes, regulation or no regulation.
The financial system has reached a level of complexity where no one understands it.
No one can assess the risks, because no one really knows what the risks are.
The credit crunch in 2008 showed banks were unable to assess the risk of lending to each other.
No one foresaw the risks of letting Lehman Brothers fail.
2008, itself was dubbed a black swan event.
The 1930's legislation did keep the bozos of Wall Street on the straight and narrow for six decades, it was repealed and they did it again.
Everyone wants to sit on their arse, letting their Capital work for them, and no one wants to do anything. It is a problem.
The largest debt bubble in history is about to explode. Those that think they have seen this picture before are grossly mistaken. When this bomb goes off, no one, not the Fed, ECB, IMF, World Bank, U.S. Treasury... no one can stop it.
http://www.globaldeflationnews.com/big-volatility-shakes-bond-investors-...
nonsense, the regimes can keep this debt party going for many many more years