Clio BulgarellaClio BulgarellaAntonio GriecoAntonio Grieco

General IndexGeneral Index

Psychology and FinancePsychology and Finance Study: Analysis of the crisis Study: Analysis of the crisis

discourse on media through the discourse on media through the Social Representations theorySocial Representations theory

Results: six main areasResults: six main areas Concluding remarksConcluding remarks

The crisisThe crisis

•Almost three years have passed since the global crisis in financial markets that exploded in September 2008 and the stock market is still fluctuating up and down, terrifying investors and keeping the whole financial system in turmoil. •This has clearly shown the fragility

and failure of several financial rules inside the market.

Emotions on Emotions on financefinance

…and it is evidence of the fact that rational economic models are too reductive and not flexible enough to grasp the complexity of the market's mechanism.

The struggle of these models is suggesting that investors' decisions are based more on emotional and irrational dynamics than on conscious cognitive processes and purely rational decisions.

Behavioral Finance: to Behavioral Finance: to understand Financial reactions understand Financial reactions through Psychologythrough Psychology

The central issue in The central issue in behavioral finance is behavioral finance is explaining why market explaining why market participants make systematic participants make systematic errors. errors.

Behavioral finance highlights Behavioral finance highlights inefficiencies such as under- inefficiencies such as under- or over-reactions to or over-reactions to information as causes of information as causes of market trends.market trends.

Such reactions have been Such reactions have been attributed to limited investor attributed to limited investor attention, overconfidence, attention, overconfidence, over-optimism and noise over-optimism and noise trading. trading.

Loss aversionLoss aversion

An other key observation is loss An other key observation is loss aversion, the unwillingness to let go aversion, the unwillingness to let go of a valued possession.of a valued possession.

Loss aversion appears to manifest Loss aversion appears to manifest itself in investor behavior as a itself in investor behavior as a reluctance to sell shares or other reluctance to sell shares or other equity, if doing so would result in a equity, if doing so would result in a nominal loss. nominal loss.

Crisis: Debates in the media Crisis: Debates in the media discoursediscourse

We want to We want to show a study show a study on social on social discourse discourse based on the based on the Social Social RepresentationRepresentations Theorys Theory..

ExploratoryExploratory Hypothesis Hypothesis

These analyses move These analyses move from the exploratory from the exploratory hypothesis that the hypothesis that the main main rhetorical rhetorical device device is is based on based on the split between:the split between:

The good “real” The good “real” economyeconomy

The bad The bad “virtual “ “virtual “ finance.finance.

Good “Good “realreal” ECONOMY Vs Bad ” ECONOMY Vs Bad

““virtualvirtual” FINANCE” FINANCE

TheThe good real good real ECONOMY ECONOMY being being anchored in the anchored in the productivity of real productivity of real people people and their work;and their work;

The The bad virtual bad virtual FINANCE FINANCE in insubstantial in insubstantial financial products produced by speculators so financial products produced by speculators so complicated that ordinary people as well as complicated that ordinary people as well as so-called experts do not understand them.so-called experts do not understand them.

MEDIA SOURCESMEDIA SOURCESAnalysis of this controversial view has Analysis of this controversial view has been conducted using texts published been conducted using texts published in various countries and languages in:in various countries and languages in:

GeneralistGeneralist and and specialisedspecialised printprint media (Newspapers, conference media (Newspapers, conference

proceedings, books)proceedings, books) digitaldigital media (websites, forum, blogs) media (websites, forum, blogs)

Looking at texts on the financial crisis Looking at texts on the financial crisis mainly based on interviews with opinion mainly based on interviews with opinion leaders and economic and finance leaders and economic and finance specialists, often specialists, often questioning the identity questioning the identity of their disciplines of their disciplines and the complex and the complex relationship between economics, finance, relationship between economics, finance, and politics.and politics.

Experts and LaymenExperts and Laymen

This analysis has looked at various print media This analysis has looked at various print media (newspapers, conference proceedings, books) and (newspapers, conference proceedings, books) and digital media (forum, blogs, websites) in different digital media (forum, blogs, websites) in different countries, and we are ready to conduct more systematic countries, and we are ready to conduct more systematic analyses by positioning opinion leaders and laymen on analyses by positioning opinion leaders and laymen on the semantic space in accordance to their role as:the semantic space in accordance to their role as:

academic experts academic experts banking experts banking experts political leaderspolitical leaders financial/economic financial/economic

journalists journalists laymen (few people laymen (few people

participants in online forum)participants in online forum)

Preliminary results:Preliminary results:Six main areasSix main areas

One of the first results evident is the One of the first results evident is the redundancy of redundancy of rhetorical figuresrhetorical figures of speech in both in generalist and of speech in both in generalist and specialized sources, which concerns six main thematic areas:specialized sources, which concerns six main thematic areas:

a) Representations of finance as a) Representations of finance as ““under accusationunder accusation””, as , as ““sick personsick person””, and as , and as ““predatory animalpredatory animal””;;

b) Genesis and development of b) Genesis and development of ““bad financebad finance”” and its and its global effect;global effect;

c) Contribution of science (financial mathematics) and c) Contribution of science (financial mathematics) and virtualisation of economics into finance (volatility and virtualisation of economics into finance (volatility and risk);risk);

d) Deregulation and market self-regulation;d) Deregulation and market self-regulation;

e) Dissociation of science from ethics;e) Dissociation of science from ethics;

f) To be done: reaction to the crisis and ethical choicef) To be done: reaction to the crisis and ethical choice..

a) Representations of a) Representations of finance as finance as ““under under accusationaccusation””, …, …

One of the main metaphors is One of the main metaphors is related to the finance related to the finance ““under under accusationaccusation””, put in the dock of a , put in the dock of a symbolic symbolic law-court. law-court.

““Litigious Condominium Litigious Condominium ““(Granata,M. Bragantini,S. 2009)(Granata,M. Bragantini,S. 2009)

a) Representations of a) Representations of finance as finance as ““under under accusationaccusation””, …, …★ ★ ““Finance is under siege, accused to Finance is under siege, accused to have pushed have pushed

the price of primary materials sky highthe price of primary materials sky high””.. ““A A particular category of bad speculators particular category of bad speculators would would include those that sell stocks without actually include those that sell stocks without actually owning the stocks they are selling" (Alesina, A. & owning the stocks they are selling" (Alesina, A. & Giavazzi, F. 2008 p.57)Giavazzi, F. 2008 p.57)

Alberto Alesina (Professor of Political Economy, Harvard Alberto Alesina (Professor of Political Economy, Harvard University), University),

Francesco Giavazzi (Professor of Political Economics, MIT and Francesco Giavazzi (Professor of Political Economics, MIT and Bocconi University);Bocconi University);

……as as ““sick personsick person””,…,…

Finance Doctor (Vita,S. Finance Doctor (Vita,S.

2009)2009) The economic The economic virus (de Cecco,M. 2009)virus (de Cecco,M. 2009) Toxic stocks (Loriana Pellizzon 2009),Toxic stocks (Loriana Pellizzon 2009), Sterilization of toxic assets (Tremonti, Sterilization of toxic assets (Tremonti,

G. 2009)G. 2009) Finance is a zero sum game and many rescue plans are like Finance is a zero sum game and many rescue plans are like

giving giving a blood transfusion a blood transfusion to a gravely injured person with to a gravely injured person with

fatal internal injuriesfatal internal injuries (Mazzotti,D. 2009(Mazzotti,D. 2009))

Regressive Regressive metaphors as metaphors as

““predatory animalpredatory animal”” or or dependent childdependent child

The banks do their work, just like The banks do their work, just like a lion when it attacks its prey a lion when it attacks its prey (Gaggi,M. 2009)(Gaggi,M. 2009)

The Italian people are like The Italian people are like ostriches ( Farinetti,O. 2009)ostriches ( Farinetti,O. 2009)

Capitalism is like a Capitalism is like a baby in a box baby in a box (Akerlof, G. 2009)(Akerlof, G. 2009)

b) Genesis and b) Genesis and development of development of ““bad financebad finance”” and and its global effect;its global effect;

The The genesis of the representations of genesis of the representations of ““bad financebad finance”” corresponds to its corresponds to its separation from economy and separation from economy and its rules: its rules:

““It all began in the 1970s, with the progressive It all began in the 1970s, with the progressive liberalization of the economy‘s principal liberalization of the economy‘s principal parameters - money, taxes and capital - which parameters - money, taxes and capital - which led to unprecedented fluctuations in important led to unprecedented fluctuations in important economic and financial principals.economic and financial principals.””La rédaction, La rédaction, Problèmes économiques: Problèmes économiques: ““Crise: la faute à ....la finance?Crise: la faute à ....la finance?”” n.2., January 2009, p.1. our translation from French.n.2., January 2009, p.1. our translation from French.

c) Contribution of science and c) Contribution of science and virtualization of economics into virtualization of economics into

financefinance The virtualization of the economy into finance The virtualization of the economy into finance

has been supported by the sophistication of has been supported by the sophistication of mathematicsmathematics

applied to economics. applied to economics. The progressive oppositionThe progressive opposition

between finance and economicsbetween finance and economics

corresponds to this process ofcorresponds to this process of

virtualization of finance, virtualization of finance,

producing volatility andproducing volatility and

therefore risk. therefore risk.

Paper economy Paper economy (Lerner(Lerner,G. 2009),G. 2009)

The financial Bubble (Morris, C.R. The financial Bubble (Morris, C.R. 2008)2008)

Castle of credit derivativesCastle of credit derivatives

(Spaventa, L., 2009)(Spaventa, L., 2009)

c) Metaphors about thec) Metaphors about thevirtualisation of economics into virtualisation of economics into

financefinance

d) Deregulation and d) Deregulation and market self-regulationmarket self-regulation

The phenomenon of the progressive The phenomenon of the progressive virtualisation of finance has been supported virtualisation of finance has been supported by the concurrent process of by the concurrent process of deregulation deregulation and market self regulation.and market self regulation.

The legal scenarios are evoked by the The legal scenarios are evoked by the metaphorical expressions like: conflict metaphorical expressions like: conflict of interest, fraud, the lawless far west, of interest, fraud, the lawless far west, bank corruption, law-courts, etcbank corruption, law-courts, etc

d) Deregulation and d) Deregulation and market self-regulationmarket self-regulation

FFinancial Innovations: A inancial Innovations: A Lawless Far Lawless Far West West (Spaventa,L. 2008 pp. IX-XXIII)(Spaventa,L. 2008 pp. IX-XXIII)

★ ★Their rule is in reality only one, the rule of not Their rule is in reality only one, the rule of not having ruleshaving rules”” (Tremonti,G. 2008 p.15)(Tremonti,G. 2008 p.15)

★ ★ “‘“‘Financial innovation --- has become a tool for Financial innovation --- has become a tool for lawlessness in that far west without rules that, lawlessness in that far west without rules that, especially in the United States, the financial especially in the United States, the financial sector has become in the last decadesector has become in the last decade”” (Spaventa, L. 2008 p. XI);(Spaventa, L. 2008 p. XI);

e) Dissociation of e) Dissociation of science from ethicsscience from ethics

★ ★ The next step in the construction of a split The next step in the construction of a split representation which opposes the bad representation which opposes the bad virtual finance to the good economics virtual finance to the good economics anchored in reality is related to theanchored in reality is related to the dissociation of science from ethics. dissociation of science from ethics.

““As for financial mathematicians, until As for financial mathematicians, until now they have not had the now they have not had the opportunity to question themselves opportunity to question themselves on the ethical purpose of their work.on the ethical purpose of their work.””

e) Dissociation of e) Dissociation of science from science from

ethicsethics

★ ★ ““But our time of standing pat, of protecting narrow interests But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions that time has surely and putting off unpleasant decisions that time has surely passed.passed.”” ““(…) this crisis has reminded us that without a (…) this crisis has reminded us that without a watchful eye, the market can spin out of control-and that a watchful eye, the market can spin out of control-and that a nation cannot prosper long when it favours only the nation cannot prosper long when it favours only the Prosperous.Prosperous.””(Obama, B. 2009)(Obama, B. 2009)

★ ★ ““A banking system was created on paper, on stocks. To this A banking system was created on paper, on stocks. To this was added the financial markets as well as other was added the financial markets as well as other speculations. This means that the banking system has speculations. This means that the banking system has deviated from its original mission.deviated from its original mission.”” (Yunus, M. 2009.) (Yunus, M. 2009.)

★ ★ ““The level of irresponsibility is frightening, just as were the The level of irresponsibility is frightening, just as were the size of the profitssize of the profits”” (Morris, C. R. 2008, p.XXX) (Morris, C. R. 2008, p.XXX)

f) To be done: reaction to f) To be done: reaction to the crisis and ethical the crisis and ethical choice.choice.

The active reply to the crisis is generally the promotion of an The active reply to the crisis is generally the promotion of an ethical choice: ethical choice:

““In the future they will have to face an In the future they will have to face an ethical choiceethical choice: work : work to enrich the banking system or rather to contribute to the to enrich the banking system or rather to contribute to the general welfaregeneral welfare””

In line with this In line with this ““to be doneto be done”” action action as ethical reaction to as ethical reaction to the crisis, media not only provide analysis in terms of a law-the crisis, media not only provide analysis in terms of a law-court scenario, but also court scenario, but also pronounce a verdictpronounce a verdict. The title of a . The title of a Press release says it all: "Finance on trial: the verdict. Seven Press release says it all: "Finance on trial: the verdict. Seven charges, on five the popular jury has found guilty". charges, on five the popular jury has found guilty".

f) Affermative actionsf) Affermative actions

““Do it yourself banksDo it yourself banks”” (Bottalico,G. 2009) (Bottalico,G. 2009)

★★ ““Millions of Americans who have worked hard and Millions of Americans who have worked hard and behaved responsibly have seen their life dreams behaved responsibly have seen their life dreams eroded by the irresponsibility of others and by the eroded by the irresponsibility of others and by the failure of their government to provide adequate failure of their government to provide adequate oversight(...) Haste is dangerous, especially when you oversight(...) Haste is dangerous, especially when you are dealing with comprehensive change in our are dealing with comprehensive change in our financial system(...)This should be the most important financial system(...)This should be the most important piece of legislation that we have had in the banking piece of legislation that we have had in the banking committee in 50 yearscommittee in 50 years”” (Obama,B. 2009) Barak (Obama,B. 2009) Barak Obama (U.S. President);Obama (U.S. President);

Concluding RemarksConcluding Remarks The key points which organizes the whole discourse

as transversal dimension is the opposition between economics and finance, confirming the explorative hypothesis..

Financial specialists, often dealing with the complex Financial specialists, often dealing with the complex relationship between economics, finance, and relationship between economics, finance, and politics, simply react rediscovering the politics, simply react rediscovering the ““common common sense truthsense truth””: to come back to the measure: : to come back to the measure: trust, confidence, the social equity and more trust, confidence, the social equity and more justice, justice, the the ““need to return to real reality rather than tying need to return to real reality rather than tying ourselves to virtual realityourselves to virtual reality”” . .

In a In a word: word: the future seems a return to the past.the future seems a return to the past.

Thank you for your Thank you for your attention!attention!