Philip attended Professor Richard Taffler’s  talk on ‘Applying Emotional Finance’ earlier this month in London.  We found him thought provoking in his own right, and it also inspired us to think about some parallels – and applications -  in our own work.

Markets – bounded rationality
Taffler’s first theme was that people often think of the markets – whether they be for products or for financial assets – to have a distinct life and DNA of their own.  That’s true in a way, but markets are, if we think about it, nothing more than amalgams of the weighted opinions and actions of its participants. And whereas economists have traditionally thought about their discipline in purely rational ways – homo economicus – Taffler’s argument is that people involvement means that it is at least as much about human emotion.  ‘Bounded rationality’, rather than either rational or irrational.  “Animal spirits”, as Keynes described them.

Fund management – excitement and fear.  Not greed
Taffler interviewed 50 or so fund managers around the world.  The underlying emotions were both excitement – in finding undervalued (or overvalued) assets coupled with the fear and sometimes stress of uncertainty.  Importantly, Taffler stressed that this was not about greed – he could not identify a single fund manager he thought was ‘greedy’ – rather the other way round if anything. It is where uncertainly gives rises to fear and stress that the problems and market fractures start.   Taffler introduced some intriguing words not associated with finance lectures (eg phantasies, paranoid schitzoid, manic process)!  These helped illustrate his theme that for good evolutionary reasons humans automatically forget the bad parts and remember the pleasurable parts.  The overarching point being that as humans we pick up on the information that confirms our a priori views and discount those that don’t – even to the point of filtering information quite blatantly.

Implications for communications measurement
How does this relate to our work?   In what we do on media monitoring, we track and profile constituencies – what they like, what they do not like and what makes them happy or angry in their words.   This can be complicated stuff and we know that this requires expert in-depth human qualitative assessment on top of whatever the software analytics can provide.  Our job is to challenge and confirm the gut feeling – and sometime the group-think and downright anger of our customers – with real numbers.  Often this does indeed involve unpicking and defusing stress and emotion associated with particular points of view – whether they be of our client CEO or CMO, or a particular journalist or analyst on ‘the other side’.  Fascinating but hard.

Building the story
With respect to Taffler, we think that individual heuristics and biases – however fascinating – can’t be the whole story.  Institutional markets are maybe more like a multi-player game of ‘chicken’ or prisoners’ dilemma, in which individuals’ judgements about each other’s states of information access are at least as important.

Interested in your thoughts.

A video of Professor Taffler’s talk is available here.