One layer over another : the trader’s psychology

One layer over another : the trader’s psychology

12 Apr 2016

In one respect, behavioral finance looks at the psychology of individual financial market players during decision making. For example, financial neuroscience looks at heart-rate, sweaty palms, and electric brain waves of individual players. In another respect, the field looks at group phenomena (is this dangerously close to behavioral economics?). For example, what are some key behaviors that expert financial traders exhibit? With this in mind, I have become interested in the identity of a financial stock market player : when are they lone wolfs, and when do their herd instincts kick in? Are they good at controlling between the two psychological states? How could their motivation and performance be related to their psychological identity as a social being in our community?

Individual-focused versus group-focused explanations are always intricately interrelated. For example, the financial behaviors of an individual could largely be driven by his/her identity. In psychology, it is widely accepted that the identity of an individual is always strongly associated with the social identity of his/her social group. While the behavior of the individual could rely strongly upon the psychologically functioning of the individual him/herself, this psyche is also affected by the perceived “group psyche”. Such bidirectionality comes in from the reference point of “the group”. While the social group is indeed made up of individuals, the group can be characterized as a single entity with particular unified behaviors and thus holding a collective group psychology. Therefore, the individual can be both singular and plural – and also, the group can be both plural and singular – which is the  basic gist that lies behind the terminologies individual identityversus social identity.

Stock market players bet on their intuitions, research and general knowledge about how other people will bet on the stock market. If identity is an important factor, then financial decisions would require the players to expertly switch between individual and social identities for optimal performance. There are two specific theories that I am interested in exploring that links psychological identity to the motivation and performance of individuals.

ONE : Identity-Based Motivation 

This theory posits that the connection of identity to specific goals increases motivation and therefore performance of individuals. What particular identities could financial players activate in order to insure motivation and performance in the market? For example, could there be certain “capitalist” identities that are importantly contributing to analytic expertise in finance?

TWO : Implicit Beliefs 

This field of research emphasizes on the more subconscious movements in our psychology. The researchers focus on the possibility that our psychology is structured around implicit beliefs about certain concepts. For example, we may have underlying beliefs that a person’s intelligence is fixed and cannot be changed. It appears that such an implicit belief encourages better performance. But on the other hand, other people could have underlying beliefs that a person’s intelligence is malleable and can be changed – and it appears such an implicit belief motivates learning and mastering (a skill). How would these changing implicit beliefs interplay and influence a financial player’s performance in the market?

 

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Works Cited

Crocker, J., & Major, B. (1989). Social stigma and self-esteem: The self-protective properties of stigma. Psychological Review, 96, 608-630.

Dweck, C. (1991). Self-theories and goals: Their role in motivation, personality, and development. In R. Diensttbier (Ed.), Perspectives on motivation (Vol. 38 of Nebraska Symposium of Motivation, pp. 199-235). University of Nebraska Press.

Hogg, M. (2003). Social identity. Handbook of self & identity.

Oyserman, D., & Destin, M. (2010). Identity-based motivation: Implications for intervention. The Counseling Psychologist, Vol.38(7), 1001-1043.