Systemic Liquidity Risk and Bipolar Markets: Wealth Management in Today's Macro Risk On/Risk Off Financial Environment

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Emotional Finance and Interval Confidence

How can investors that have been so traumatized by the complete absence of normal liquidity conditions that they were unable to engage even in short-term arbitrage opportunities, where the interval spanned is just a matter of hours or days, be persuaded (or persuade themselves) to become confident again and to engage in long-term investing and investment decisions? The reason for inserting the parenthetical phrase “or persuade themselves” in the formulation of the question raises the difficult matter of the human mind’s propensity to have selective recall and on occasion to engage in a form of self-deception. Without becoming too philosophical, there is a behavioral trait which human beings have – perhaps because of the mystery of their mortality – to screen out and “ignore” certain unpleasant memories and deep seated fears in order to function normally and go about their daily business. However the fact that within an individual’s consciousness there is both knowledge of those unpleasant memories and fears – and the recollection of the events that may have precipitated such discomforting memories – and at the same time an ability to overlook them (at least much of the time), suggests that our capacity for tolerating cognitive and emotional dissonance is considerable and enigmatic.

Understanding the psychological processes involved in the recovery from a crisis – both in the obvious sense of the emotions experienced directly as a result ...