31 January 2012
Psychologist explains madness of the markets
The Global Financial Crisis was driven by psychological failings and a culture of peer pressure and denial, according to a new book by RMIT University's Adjunct Professor Susan Long.
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The book, Towards a Socioanalysis of Money, Finance and Capitalism, is the first of its kind to use psychoanalysis in explaining the decisions that triggered the financial collapse.
Looking at the root causes of the economic crisis, Adjunct Professor Long found there was a culture of fear and anxiety among the highest levels of management.
"Making important and risky decisions under these circumstances leads to increased anxiety," she said.
"Too often that anxiety is managed by bravado, avoidance or other such defences. These can become collective defences and part of the culture."
The book describes a common culture among financial institutions of recklessness and a lack of awareness of the impact of their decisions.
"Bad decisions occur due to arrogance, extensive ego-involvement, group pressure and blind competitiveness," Adjunct Professor Long said.
"Many key factors that led to the financial crisis were due to wishful thinking, when leaders fooled themselves that various risks could be overcome despite evidence to the contrary.
"Perhaps they do this because of ego-investment or anxiety, while some come from peer pressure to conform despite one's better judgment."
Adjunct Professor Long, who is also President of the Psychoanalytic Studies Association of Australasia, co-edited the book with Emeritus Professor Burkard Sievers from the Schumpeter School of Business and Economics at Bergische Universität Wuppertal, Germany.
With contributions to the book from Australia, Denmark, France, Germany, Hungary, Sweden, The Netherlands, the UK and the USA, examples from around the world all reflected similar themes.
"There were many similarities, I think because corporate culture is becoming more global," Adjunct Professor Long said.
Towards a Socioanalysis of Money, Finance and Capitalism (Routledge, $155) follows Adjunct Professor Long's controversial depiction of corporate greed in her 2008 book, Corporate Culture and the Seven Deadly Sins.
