Master illusionists manipulate investor mindsets - MarketWatch

[NVMojo]

America's 'Hollywood economy'
Where the future is all in your head, manipulated by master illusionists


Last Update: 12:43 PM ET Sep 19, 2006

ARROYO GRANDE, Calif. (MarketWatch) -- "Nothing is what it seems:" That rule fits Hollywood. It also works for the illusions of Wall Street. Every illusionist knows that your brain secretly loves being mislead, deceived and manipulated by fantasies. Want proof? Let's begin in Hollywood ...

"The Illusionist" is a brilliant new film about Eisenheim, a magician who fascinated Vienna a century ago. "Nothing is what it seems" warns the subtitle. Oh, the clues are everywhere. But not obvious till later when your brain retraces the unfolding drama.

What is it about our brains that pull us inexorably into this shadow world, where we willing accept as "real" a world of illusions where nothing really is as it seems? When enter a dark theater, once inside you know your brain is programmed to trade reality for a world of fantasy and illusion, even untruths and deceit. You know you will not only be misled, you insist on being deceived. In fact, you will feel cheated if you are not deceived, if you figure out the film's plot too easily!

Admit it, your brain really loves being misled, lied to and deceived! Why? Because it is programmed to deny reality. Because it delights in being tricked by fantasies. Call it 'entertainment" if that helps rationalize your denial. But the truth is: Your brain inexplicably draws secret, dark pleasure from being deceived, misled and manipulated.

Unfortunately, your brain functions the same way in the so-called real world of politics, economics and investing. Hordes of illusionists wait for you to enter their dark theaters. Whether bear or bull, they know your brain will automatically suspend it's reasoning powers for the pleasure of indulging in a well-crafted illusion that fits neatly into your brain's preprogrammed mindset of illusions:

Bear brains. Seriously, it really doesn't matter whether you have a bull brain or a bear brain. A month ago I reported that the economy had passed a "tipping point" and was collapsing into a bear market, a scenario similar to the 2000-2002 recession. Bears agreed, bulls objected.

Bull brains. Two weeks later, I reported on the opposite scenario, suggesting that 2007 might become a bull market, like 2003's surprise bull market. But that was totally unacceptable to bears. One college professor said my report was "shameful stuff after all the doomsday forecasts of the past year."

The truth is, a bearish brain can only "hear" bearish predictions and growls at bullish ones. Visa versa with bullish brains. Brains are wired one way or the other. We screen out contrary facts and opinions. We only accept opinions that reinforce our preprogrammed illusions. Bull or bear, all investors are trapped in their cocoon of illusions, where economic predictions and market forecasts have far more power than any created by Hollywood's best illusionists ... and they're far more elusive until it's too late.

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[swag]

1. Great article.

Thanks for posting.

You might also enjoy Robert Shiller's Irrational Exuberance, especially the chapters on behavioral finance.

[AnneD]

2. OK...

'splan this.... I am an optimist by nature. Have never shied from risk and have felt 'bullish' by nature. Yes I suffered some losses but I've always done well in the market (investor since early 80's). But yet.....I have been bearish since 2002 and as of this year have been bearish enough to be out of the market as much as possible. I am still an optimist by nature-but I don't believe the 'sales pitch' we are being spoon fed at the moment.

So what does that make me? Neither.Sorry, some investors may fall into the category, but I tend to listen to my own drum when it comes to the market.

[Jim__]

3. Illusion or delusion?

I can't judge what I take to be his main point, namely, that there are no real accurate predictors of what will happen to the economy, even in the near future. I do accept that the economy is extremely complex, and predicting its future is difficult to say the least.

However, I think the sentence that I most agree with in his article is this, "The truth is, a bearish brain can only "hear" bearish predictions and growls at bullish ones." That indicates the phenomenon that he is describing is more of a delusion, more a part of our personal belief system, than an illusion. I believe the phenomenon he is describing is more a result of the fact that we believe what we believe, and in general, it takes a lot to get us to change a belief. That's probably a safer approach to life than changing our beliefs at the first sign that a particular belief may be wrong. But, given enough evidence, beliefs can change.

[NVMojo]

4. in a way, I think he has geared his message to the lambs about to get

slaughtered in the markets coming up. It's like a warning for the last person off the sinking ship who wasn't paying attention. And there are a lot of them out there ...