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This is not a new idea, definitely not, but I hope to explore this idea in the hopes of bettering individual stock trading habits and also informing financial policy makers to curb crises arising from phenomena such as market bubble bursts. Market bubbles are just psychological bubbles, manifested physically. Perhaps exploring the psychological side of financial stock trading can help us navigate through these bubbles more safely.
From a psychologist’s point of view, financial decision-making is just one thematic portion of a larger mechanism at hand: decision-making in general. In my previous posts, I briefly touched upon the topic of irrational and rational decision-making with respect to finance and how optimal the decisions made can impinge on the values that an individual can hold dear to one’s heart. I will now proceed to make future statements about decision-making in general.
Decision-making is value-dependent. Values are consolidated rationalities with respect to multiple (circumstantial) variables within someone’s life-space. Each value in motion (in ‘ownership’ of a value by an individual) manifests itself as psychological identity (in other words, there are as many values as there are identities). Consolidation follows distributive laws (most likely evolutionary): each law in motion (acceptance of the law by an individual) can be described as schema or belief-systems that relate one rationality to another rationality (our logic is associative).
‘Life-space’ refers to the psychologically active space in which the individual is consumed within every passing moment (the Interactive Reality). The life-space is filled with psychically engaged variables (psycho-particles), for which the individual’s connectivity (probabilistic clarity) to each of them forms a rationality (there are as many rationalities as there are psycho-particles). This probabilistic clarity is mainly a function of abstractive and perceptive intelligence (AKA, learning & knowledge).
Within each life-space, there can be several consolidated values. Each value has consolidation robustness basically dependent on the individual’s expertise upon the subject matter that the value is based around. Robustness may be enhanced (and therefore over-heated or nullified too) by affective/emotional properties of distributive laws (in fact, these properties should really just be seen as enhancement properties, or multiplying effects – but we can also call them emotions). When robustness reaches an excitatory threshold, this activates a decision. These processes are all entirely per space-time unit and therefore ‘following through’ with a decision would require a stable, or robust, action-potential across time (the value must have a stable half-life).
A financial decision often made is typically whether to sell or keep stocks. A financially themed value is based upon several rationalities that are telling the individual that this stock value will probably decrease in the future – all of which are entirely dependent on the individual’s connectivity (probabilistic clarity) to the field of finance. Indeed, how well does s/he know that, for example, the price of oil is associated with the stock in question? But since I assume that the average investor is not an expert, the robustness of this value is unstable. There are other rationalities in his or her life-space, for example, rationalities telling him or her that rent is due tomorrow and possibly cashing out could give him or her peace of mind since the next pay check is not due for another 3 weeks. The value of ridding his or her mind of stress is consolidated with the initial value, of which the distributive laws seem to be pushing the threshold to a “sell” decision. Indeed, for what reason was selling the stock the right decision?
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