Dan Ariely: Why The Next Market Downturn May Quickly Become A Full-Blown Panic

by Chris Martenson, Peak Prosperity Behavioral economist and author of Predictably Irrational Dan Ariely returns to explain the science underlying the continued mismanagement and mal-investment within our financial system, despite 7 years of opportunity to learn from and address the causal factors of the Great Recession. Behavioral science shows we are our own worst enemies in this story. In a realm where everything is so quantifiable, measurable and trackable, one would expect exceptionally good decision-making. But it’s our human wiring, our proclivity for seeing things as we want them to be rather than as they truly are, that makes us vulnerable to influences we often aren’t even conscious of. And the bad decisions — and bad outcomes — ensue:

For me, as somebody interested in human behavior, there are two elements that worry me a lot. The first one is Conflicts of interest. Conflicts of interest is one of those things that get to us without us realizing how powerful it is. Imagine that you invite me to dinner, and you buy me a beer and a sandwich and we talk more and we become friends. To what degree am I going to be able to see the world in an objective way without taking your perspective into account? It turns out conflicts of interest are wonderful because they allow us to create friendship really quite quickly. You can buy someone a beer and a sandwich and they become your friend to some degree. Once you marry this with a complex system like the financial system, all of a sudden some not-so-good things can happen. I think we really haven’t done much to address conflicts of interest in our financial system — there are lots of places where people get paid in all kinds of ways that have conflicts of interest. There are companies that have divisions within them that create tremendous conflicts of interest. And human nature doesn’t help. What happens is that you look at yourself and you ask: Do I have conflicts of interest? You say: No. Of course, not. I evaluate everything objectively; therefore, we don’t need regulation. But I think we do, and actually to a much higher degree.

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