Psychoanalysis

David Tuckett

Current Research

The Psychoanalytic Study of Financial Markets

Over the past few years David Tuckett has brought together his initial training as an Economist with his subsequent work in Sociology and Psychoanalysis to initiate a new field of enquiry applying psychoanalytic thinking to the understanding of financial markets.

Asset Price Bubbles

Working with Richard Taffler (Martin Currie Professor in Finance and Investment, University of Edinburgh School of Management) the first paper produced explored the emotional trajectory of the 1995-2001 Dotcom bubble and was published by the European Asset Management Association (click here to see the paper).

In the years that followed a study of a variety of asset price bubbles was undertaken and a thesis developed focusing on the way excitement is generated in financial markets and the states of mind in which decisions are made. It is argued that asset price bubbles follow a predictable and path-dependent emotional trajectory in which the final stages, panic and then blame, are as significant as the initial excitement.

In 2006 David Tuckett was awarded a Leverhulme Senior Research fellowship to conduct a Psychoanalytic Study of Investments. The study aimed to provide a description of the work of asset fund pr portfolio managers and the processes of thinking and judgement they bring to their work. An interview method was developed to research how implicit unconscious theories and emotions might enter into and influence the working methods and judgements of fund managers. It was hoped that insights would assist fund managers in reflecting on their task and provide an indication of the future value of this combination of interdisciplinary work for the further understanding of financial markets, facilitating the development of appropriate methodologies to enable any desirable future investigation. Work began at the end of September 2006 and interviewing proper began in Boston in January continuing until the end of August. 52 managers eventually took part working for 16 of the world's leading investment houses. They were based in Boston, Edinburgh, Paris, Philadelphia, New Jersey, New York, London and Singapore and represent a global sample. They use a variety of fundamental and quantitative techniques and between them control many hundreds of billions of dollars in assets invested in all regions of the world. All but the most recent interviews have been transcribed and their analysis is in progress. Papers and other publications are anticipated in 2008.

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Emotional Finance

Traditional finance, derived from neo-classical economic theory, assumes investors are rational and competent. Behavioural finance, borrowing largely from cognitive psychology, explores investing as a special class of decision-making under uncertainty, and highlights serious judgemental biases. It acknowledges the importance of emotion. Both approaches have successes and failures in what they can explain. Together with Richard Taffler, the possibility of a third paradigm, emotional finance, has been put forward which emphasises the key role of the emotions as drivers of investor behaviour.

As a new area within finance, emotional finance is at an early stage of its development as a coherent discipline. But it will aim to provide an understanding of financial market behaviour and investment processes by formally recognising the role unconscious needs and fears play in all investment activity. It is argued that investment judgements are made under sway of powerful and potentially debilitating unconscious forces with the implications often not recognised. A proper understanding of these issues is needed, making the unconscious "conscious" and relieving the acute levels of pressure and stress many market participants suffer from. It is hoped such ideas could significantly improve the psychological "health" of market participants, and the quality of investment decisions.

Papers:

Addressing the Psychology of Financial Markets. Institute for Public Policy Research. Published as part of the IPPR Tomorrow's Capitalism programme. (2009).

(with Richard Taffler) Phantastic objects and the financial market’s sense of reality: A psychoanalytic contribution to the understanding of stock market instability. The International Journal of Psychoanalysis. 89(2), 389–412. doi:10.1111/j.1745-8315.2008.00040.x (2008).

(with Richard Taffler) Emotional Finance - Understanding what drives investors. Professional Investor. (2007, October).

(with Richard Taffler) In the mood for instability. Financial Times. (2007, September 20).

(with Richard Taffler) E motion's role in investment: Ask the Experts. Financial Times Website. (2007, September 20).

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