Resources - Mature Market Headlines

Hope, Greed, and Fear: The Psychology Behind the Financial Crisis

Knowledge@Wharton, 4/15/09

Abstract:

To explain the current economic crisis, the world of finance has a particular lexicon -- including, for example, credit default swaps, mark-to-market and securitized subprime mortgages. Psychologists, on the other hand, might use very different terms: hope, greed and fear.

The language of psychology helps to address the fact that behind every cut-and-dried statistic about falling home prices and other indicators of economic decline, lies an ever-shifting horde of homeowners, bankers, business owners, unwitting investors -- in short, people. And people often pay no heed to fine-tuned economic models by doing things that are not rational, are not in their best interest, and are justified not by numbers -- but by emotion.

"There are spreadsheets and financial statements and models and rules and regulations," said Carolyn Marvin, a professor at the University of Pennsylvania's Annenberg School for Communications. "On the other hand, there are these feelings we have."

> Read the full story > Return to 50+ Headlines