譯作：THE PSYCHOLOGY OF FALL（《雷曼倒閉背後的心理學》）

Source Text（源文）：

THE PSYCHOLOGY OF FALL

The SCMP refers to this the CEO of Lehman as a man ‘full of pride’, while the Times described Richard Fuld as ‘the Gorilla, the scariest man on Wall Street’. Rank Parnoy sums up by asking if the failure of Lehman, in part, was due to ‘a failure of character’

Are these perhaps an over-simplistic view of failure?  Was it a tragic flaw that brought down Lehman Brothers, or did Mr Fuld succumb to decision error, the typical mistakes that we are all prone to making, and when combined together, can lead to poor risk management and eventually precipitate catastrophe?

As one looks at the downfall of a great company and its leader, therefore, we can not help but draw comparisons between the recent research in the psychology of investing, and some of the mistakes that appear to have been made. Research in 1957 by Herbert Simon suggested that people are limited in their rational decision making. Amos Tversky and Daniel Kahneman, both fellows at the Centre for Advanced Studies in the Behavioral Sciences at Stanford University in the 1970’ s, found more evidence on the limitations of human rationality. They discovered that excessive information can both overload and delay us, leading us to take shortcuts in making judgments, which often lead to human error.

We are genetically hard wired to simplify and interpret our environment so that it is predictable. The brain does this through cognitive short cuts. Secondly, these filters may be clouded by our emotions, experiences, upbringing and individual differences, so that each of us might interpret the same event differently. Many of these biases are non-conscious, or become so after time through an unconscious learning and reinforcement process.  Thus Tversky and Kahneman, who won a Nobel prize in Economics in 2003 for their work, found that the investment field was fraught with human error due to cognitive and motivational bias.

Mr Fuld has been described as ‘obstinate’, ‘a Lehman loyalist who never wanted his firm to be sold’. Might this be consistent with Anchoring? Research on the Anchoring Bias holds that once we form an opinion or anchor of something or someone - a share, a company, an Adviser, etc we are likely to maintain that attitude. A tourist who may have visited Hong Kong for the first time, in the Typhoon 8 of today, may form a poor anchor of Hong Kong as a nice place to visit. Belief Perseverance suggests that there is a tendency to hang on to our beliefs even in the face of contradictory information. When presented with conflicting information, we are still likely to hang on to those beliefs, and may ignore or sub type the conflicting information, where in fact what we should rationally be doing is reassessing our anchors and making adjustments.

According to the Australian (September 20) Mr Fuld’s ‘clout grew. In March 2005, he was named to the board of the Federal Reserve Bank of New York ’, with fellow members CEO’s from JP Morgan and General Electric. Thus Mr Fuld joined the group of CEO’s who were sought after by boards. Such acclaim would boost anyone’s confidence. Confidence can lead to ‘over ‘confidence, which can lead to over-estimating (or under-estimating depending on the context), to an illusion of infallibility and to risk taking behaviour. Fuld ultimately gambled nearly four times the company’s shareholder equity on mortgage securities in 2007.

No doubt in the face of alarming new information, Mr Fuld may have experienced Cognitive Dissonance, the mental anguish that drives us crazy when having two contradictory ideas simultaneously. Cognitive dissonance can trigger many responses, but one thing is clear – we all strive to remove the dissonance because it makes us very uncomfortable and works against our natural inclination to preserve our self-esteem.  The healthy response is to meet the source of our dissonance head on and change our behaviours. However, there are a number of maladaptive responses people are prone to. One such response is denial, sweeping the problem under the rug in the hope that it goes away.

And so, reports the Australian, the CEO of Lehman’s ‘waited too long to write off bad debts, then didn’t act quickly enough to sell a stake to raise capital’.     

Cognitive dissonance can lead to Disposition Bias, a tendency to hang on to underperformers for too long, (and sometimes to sell high performers too quickly)? Research shows that people are emotionally hard wired to engage in activities that create pride but avoid activities that create pain. In fact, the pain of loss is much stronger than the joy of winning. The latter is also much stronger when the decision made is your own, but when there is a market decline it is mitigated as we may attribute the loss to market forces.

Consequently, the Lehman’s shares fell 77% during the course of last week. Bad news travels fast, and at this point Herding most certainly took place, as word quickly spread that the company would need to file for Chapter 11. Sheep stick together for protection, and while at one moment the flock may be resting quietly, the slightest trigger can set them off into a panicked stampede. Herding can change markets, create bubbles and trigger downfalls in companies.

I hope that CEO’s and companies can learn from the mistakes of others.

Jennifer Bovard is a registered Organizational Psychologist, specializing in recruitment, and management training. She runs a course on behavioural finance:- 8 CPD hrs SFC  6 CPT hours &  MPFA's 6 non-core CPD hours.

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Translated Text（譯文）：

Jennifer Bovard是註冊機構心理學家，專門從事招聘及管理方面的訓練，並開辦「行為金融學」課程（8個 CPD 小時，證監會6個 CPT 小時，以及積金局 6個 non-core CPD 小時）。

譯者：Eric & Topaz