Tuesday, December 23, 2008

Human nature makes a bad economy worse, experts say - Vancouver Sun

Much of a financial downturn is psychologically based, experts say

Warren Thorngate, a professor of social psychology at Carleton University in Ottawa, says most people in his profession would say at least half of what happens in an economic downturn is psychologically based -- and some would say it all is.

Thorngate says what's happened on the stock market is an example of "group phenomenon," where people's reactions are largely based on what others around them are doing. He says its almost like someone yelling "fire" in a crowded theatre and, as a result, people panic because like everyone else, and they rush for the doors. Unfortunately, the ensuing chaos leads to fewer people escaping with their lives.

"If you're looking at me to see if I'm rushing to something, and I'm looking at you, as soon as one of us starts rushing, the other one's going to do it," Thorngate says. "And that will mean that two people will be doing it, and then other people around us will look at us and say, 'There must be something wrong,' and they'll start rushing. And pretty soon you have a chain reaction."

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