Crisis in the Markets: More Imagined than Real? – Financial Times Deutschland

Just how real is the current economic crisis? With all the talk about ‘restoring confidence’, what is implied is this: Our current difficulties may be due more to psychology than actual economic conditions.

Taking on this question for Germany’s Financial Times Deutschland is Nicholas Adjourim, managing director of Adjouri Brand Consultants – a European leader in branding and marketing – who thinks letting a tried and true brand like Lehman Brothers fail caused almost an irretrievable loss in confidence.

Adjouri writes in part:

“Back to the facts: Of course, we’re now experiencing a severe crisis on international financial markets. It’s also clear that the current distortions within financial markets and the real economy are on a par with the global economic crisis of the 1930′s. At least since the Nobel Prize in Economics was awarded to Daniel Kahnmeman for his work on Behavioral Economics, we have known that all human beings – particularly financial professionals – make decisions not on a rational basis, but on irrational principles. Prior to this, the popular wisdom was that decisions were made based on use-oriented facts, the symbol of which was the so-called Homo Economicus, i.e.: the rational man who weighs the pros and cons and then decides on supposedly correct decisions in order to maximize profits.”

“This is the theory which dominated over recent decades and only slowly, but rightly so, is being supplanted. Because the opposite is true: Recent findings in the field of cognitive psychology show us that most of our basic decisions are drawn from irrational thinking. We’re often tempted more by emotion than we would like to admit.”

By Nicholas Adjourim, managing director of Adjouri Brand Consultants

Translated By Ulf Behncke

February 21, 2009

Germany – Financial Times Deutschland – Original Article (German)

The financial players and the U.S. government have underestimated the role played by a dangerous accelerant in this crisis: psychology. When fear becomes a mass-phenomenon, all of us hold our collective breath.

Imagine that you wake up tomorrow and the financial crisis is no more. Everything we’ve heard or read in recent months about panic on the financial markets, bankruptcies, production stoppages, mass layoffs and rescue packages would be gone, finished, wiped out – just as though none of it had happened. While this may sound utopian or irrational, the idea isn’t so absurd. Indeed, the concept could be summed up in a single question: What if the financial crisis isn’t real, but merely a self-fulfilling prophecy?

READ ON AT WORLDMEETS.US, your most trusted translator and aggregator of foreign news and views about our nation.