Why Psychology fails to explain the Global Financial Crisis

Listening to Australian historian Robert Mann’s recent lecture at the Melbourne Writers’ Festival on whether neo-liberalism has a future, I was struck by the deficiency of the rush to psychological explanation. In seeking to analyse the supposed inadequacies of the free-market ideology, there is an increasing tendency to rely on psychology as the master discipline, the new ‘commmon sense’ that will unlock the secrets of collective human behaviour. Just as the neo-liberals championed the perfectly rational economic actor, homo economicus, who as an individual is unrecognisable from any other perfectly rational individual, so the latest commentators attempt to correct and complete the picture by pointing out that this vision misses out humanity’s essential irrationalism, epitomised by a host of psychological quirks – which set the bounds for Kahneman and Tversky’s bounded rationality. But whether for or against the unfettered free market, these supposedly conflicting approaches share much more than they disagree on: namely a confidence that what goes on in our heads is what it’s all about. Continue reading “Why Psychology fails to explain the Global Financial Crisis”

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