PSYCHOLOGY OF (MARKET) FEAR
Global markets have been extremely volatile because confidence has been shaken.Any negative or positive sign sends investors hurtling off in one direction or the other.But just how does panic, and the psychology of fear, play out?
A science called Neuro-economics studies how people make decisions.I spoke to Professor Neil Bearden who teaches at the INSEAD business school in Singapore. He has done research on the psychology of decision-making in business and economic settings. He says, “fear develops in the current market by contagion. If people around you are fearful, the closer you are to people who are scared, the more likely for you to become scared. For example, someone who lives next door to those affected by the Lehman minibonds will be more fearful than someone who lives a block away. So sheer proximity helps. Like how flu or disease spreads. Fear spreads the same way.”
So if I may, I suggest we refocus on market fundamentals and not easily react on short-term news.
