The Power Of Denial in Market Psychology

The Power Of Denial in Market Psychology



A great deal has been written about Denial in the treatment of addiction, Alcohol, Drugs, Food and Gambling to name a few. Out of 100 average individuals presented with unpleasant or repugnant probabilities; i.e.: “You will die if you continue this behavior” 90 percent of people switch off. They may listen and even agree with the statement, however taking any action, breaking an entrenched habit is not going to happen.


How many Economists and Traders when presented with the information about a possible breakdown of the Worlds Financial System back in 2006, stopped and dispassionately considered the facts and took appropriate action? There were people a very small percentage making the point and presenting the arguments logically even writing books on the subject.


Human Beings do not want to listen, they will ‘Hear’ but they will not listen. While you talk, they are thinking of the their next statement. The majority of people in charge of the Worlds largest Financial Institutions and the bulk of individuals involved are not stupid. They are generally well-educated intelligent people. Yet accepting and acting upon the unpleasant realities that the future held in 2006 was unacceptable.


Only about 20% of the population has recognizable Addictions, Obese people know what they are doing to themselves yet Denial enables them to eat just one more slice of cake. “I will exercise it off tomorrow”, the Alcoholic thinks “Just the one and I will go home” The Gambler is the same. Those of us without these recognized problems believe that the thinking is confined to just that group of people. This is not the case. Most of Humanity shares the same thinking process. How many wealthy people ignore the rising Blood Pressure and the Ulcer or the disintegrating Marriage? They could quit today but habits are hard to break.


It is with this understanding of the ability of Humans to ‘Rationalize’ their behavior we can understand the failure of so many educated and informed people to keep doing the same thing everyday expecting a different result. When the thought pattern breaks is when the individual is faced with an undeniable situation that in its magnitude and personal implications the person is forced to accept the reality of hitherto possible outcomes. The GFC was such an event. A very few people escaped its effect because they had recognized it prior to the event and took action to protect themselves.


The GFC as with the Great Depression was foreseeable, Climate Change is foreseeable, most people accept Climate Change, most Alcoholics know they are Alcoholics. In Economics the thinking and beliefs of the majority drive the Economy. At this moment in time there are a few voices predicting unpleasant events are yet to come because we are still doing the same things expecting different results.


We call them ‘Contrarions’ because they are in the minority and hold views nobody wants to accept. They predict that more pain is ahead, a disaster worse than the one we just experienced. The majority of these few voices are saying that adding more Debt, sustaining Deposits in the Trillions, supporting Companies & Countries that should be Bankrupt will bring down the Worlds Economy.


Many of us ‘Hear ‘ them, very few are listening. Even fewer are acting. If Investors were acting we would see a run to solid assets, paper money would be devalued or worthless depending on the country. How many of you with incomes over 50K have enough food stored to last 6 weeks? I bet you have Life Insurance. Do you have a Generator? With Natural Disasters as frequent events now?


The above are simple “Insurances” cheap ones compared to buying Burglary or Third Party, or Funeral. I bet that most of you do not even have decent First Aid kit.


Right now a lot of people could save themselves a lot of possible future pain and probably if you take a good had look at where unsustainable Debt is taking you, your family or your country. You would take pause, not have that slice of Cheesecake and promise to work it off tomorrow because that is what we collectively are doing. We are waiting for Tomorrow and for some deeply embedded reason the Human Mind is geared this way. If it was not; then the Dow would be at 1000 not 10,000.