Why are Wall Street investor types such panicky little bitches? Chill the fuck out! Oh yeah, and be sure to ammo up and plant a garden.
Why wouldn't they be? When I conjure up an image of a Wall Street minion—and remember, it's the minions who actually make these trades—all that can come up is the George W. Bush archetype, the consummate Harvard Business School graduate. The men and women who make the trades on Wall Street, and control these vast fortunes, are human. And as humans, they're anything but the masters of wisdom and foresight they claim to be.
Let's dispense with the notion that even professional investors act in a manner that remotely resembles rationality. This idea is the crux of modern economic theory, and it's been disproven in one experiment after another.
Let's do one such experiment together right now! We'll call it the ultimatum bailout. The government is offering us $1,000. All we have to do is agree on the split. And, according to the rules of the bailout, I get to decide how much each of us receives. (Why me? I'm the one answering questions here! Go read some Ayn Rand if this doesn't make sense to you.) So long as you agree, we both get our share of the cash. If you disagree, neither of us receives money; you have the right to sink it for both of us.
If I offer to split it evenly, $500 each, you'd say yes, right? What if I offered you only $100? You (and most other people, as per many studies on the subject, done in countries around the world) would say no. It's unfair. That's irrational, from an economics perspective. If you said yes, you'd still have $100 more than you have now; who cares how much I get? The emotion-processing centers of your brain care. In fact, the more unfair the split is, the more the emotion centers of the brain become active, drowning out the reason centers. The activation of the bilateral anterior insula is of particular importance; it becomes active during strongly negative states—like disgust and anger.
Panic, at least from one point of view, is the takeover of the brain by such emotion-processing centers. Our brains are particularly prone to this sort of takeover when it comes to thinking about gains or losses, fairness and unfairness when dealing with money and material goods. Faced with the possibility of a loss, our reason is killed by our fear, anger, and distress. Combine this with the fact that so much of what happened on Wall Street resembled gambling rather than investment, and you have the perfect recipe for the sort of magnifying boom and bust cycles that buffet us regularly in the post-financial- regulation world.
Send your science questions to email@example.com.