Vikas Shah, November 2013
Originally Published in Entrepreneur Country
It’s curious how we treat the market as a phenomenon that exists outside us; akin to climate. Our forecasts describe the oscillations and undulations of this entity with the accuracy we would expect from weather forecasts. Tens of thousands of businesses, traders and other participants go-out, take-cover or make decisions on the basis of these words. For longer than most market-participants would care to admit, the ‘invisible hand’ was seen as being the arbitrator of the economy, but in more recent times- we have started seeing things a lot more clearly.
A market economy is not an entity that exists outside us, but rather… it is ‘us’. Markets are an amalgamation of the interactions of entrepreneurs (in all their forms), governments, and financial infrastructure providers (such as banks). Whilst we tend to describe these as entities, institutions or so forth- the truth is, they are comprised of people who; while communicating using the universal language of data; in truth, are highly emotional – psychological – beings.
To really understand how economies behave, we must therefore understand the psychology of entrepreneurs and other key market participants. To learn more, I spoke with Professor Daniel Kahneman, who is widely regarded as being the world’s most influential living psychologist. In 2002 he was awarded the Nobel Prize in Economics “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty”, work he undertook with the late Amos Tversky. Kahneman is a Senior Scholar at the Woodrow Wilson School of Public and International Affairs at Princeton.