David Brooks was onto something interesting in today's op-ed column in The New York Times. This was the first piece I've come across addressing how emotional distance may have contributed to the financial crisis. He wrote: The economists talk about mispriced risk and illiquidity in the system. But many economists are trained to downplay emotion, social psychology and moral norms, and so produce bloodless and incomplete descriptions of what's going on. The truth is, decision-making is an inherently emotional process, and the traders in charge of these trillions become bipolar as a result of their uncertainty.
1. Traders don't see reality directly they view its shadow in technical models on their computers. 2. Social and emotional contagion fuel increasingly irrational decisions.
It's time to get real. Maybe we should stop looking at complex financial scenarios and start using common sense. Maybe we should stop listening to on-air hysteria-inducing bloviators and start trusting our emotional gut if it feels too good to be true, that's probably the case. And if you're frightened out of your wits, step back, and take a deep breath before jumping.