On Lake Wobegon “all the women are strong, all the men are good-looking and all the children are above average” says the great American satirist, Garrison Keillor in his Prairie Home Companion world. But doesn’t that also describe all the too-greedy-to-fail fatheads running Wall Street? And, unfortunately, Main Street America’s 95 million irrational and self-sabotaging investors? Yes, all of us! We’re Americans. Don’t confuse us with the facts, with reality. We’re the greatest in history, a legend in our own minds. And a rapidly mutating virus is spreading this lethal pandemic far beyond the shores of Lake Wobegon. Yes folks, the “Lake Wobegon effect” is hard-wired in America’s brain, an illusion of superiority, a smug arrogance where each knows we are the best, the chosen ones.
Warning: The “Lake Wobegon effect” is the single best summary of today’s stock market psychology, high-frequency trading, behavioral economics theories, and the new science of irrationality … and it’s sucking the life out of America’s soul. Here, listen to more of these arrogant musings surfacing everywhere from deep in our collective brain:
· all Wall Street bankers are worth 100 times any Main Street investor.
· all Corporate American CEOs deserve to make 400 times their workers.
· all children of all Forbes 400 billionaires deserve to inherit tax-free.
· all lobbyists deserve millions when winning billions for special interests.
· all taxpayers should pay for catastrophic mistakes of Wall Street fat-cats.
· all super-rich hedge fund managers deserve to be taxed at capital gains rates.
· all senators deserve to become millionaire lobbyists when they retire.
· and Goldman Sachs CEO Lloyd Blankfein deserves a $100 million bonus.
Yes folks, this is America’s collective brain buzzing along at hyper-speed. This is the toxic irrationality driving America in the 21st Century … and it really is destroying our soul from within. Seriously, look outside the isolation bubble you live in. Ask why so many other American brains are on auto-pilot, guided by what Yale psychologist Dr Paul Bloom humorously calls the “Lake Wobegon effect” in his New York Times review of The Invisible Gorilla by psychologists Christopher Chabris and Daniel Simon: The Invisible Gorilla is “one of the most famous psychological demos ever. Subjects are shown a video, about a minute long, of two teams, one in white shirts, the other in black shirts, moving around and passing basketballs to one another. They are asked to count the number of aerial and bounce passes made by the team wearing white, a seemingly simple task.”
Stop. Test yourself before you read on. What does “The Invisible Gorilla” study tell you about the brains of folks gambling in Wall Street’s casinos? Where billions of shares, trillions of dollars, stocks, bonds, derivatives trade daily? What’s “invisible” to you? Stop again. Look closely: Not just in the brains of Main Street’s 95 million investors. We know we’re irrational and easily manipulated. But our leaders too? All our Wall Street CEOs, brokers, high-frequency traders … all our government bureaucrats, policy wonks, congressional committee heads … all our pension fund bosses, mortgage lenders, central banks policy makers … and all the other global players playing games with derivatives in the $670 trillion unregulated global shadow banking casino that’s avoiding real reform?
The investor’s brain is a very bad “computer”
Years ago America’s leading behavioral economist, Richard Thaler warned: “Think of the human brain as a personal computer with a very slow processor and a memory system that is small and unreliable … the PC I carry between my ears has more disk failures than I care to think about.” And it ages badly. Factor the “Lake Wobegon effect” and the “Invisible Gorilla” into your computer. What do they tell you about the impact of billions of irrational decisions made by all gamblers betting at Wall Street’s 24/7 global casino? (More)