“Mind over Money”

Malcolm Clark and the PBS Nova Documentary "Mind over Money"

Malcolm Clark wrote, produced, and directed the PBS Nova documentary "Mind over Money" in 2010. The film attempts to investigate a basic economic premise, namely rationality.

Behavioral Economics and the 2008 Financial Crisis

It demonstrates how emotions play a role in day-to-day financial decisions, which is a separate facet of rationality known as behavioral economics. The documentary's significance is enhanced by the fact that it was created following the 2008 financial crisis.

The Failure of Rationality and the Rise of Behavioral Economics

The film, which appears to be in favor of behavioral economics, attempts to demonstrate how the assumption of rationality led in the failure to forecast and ameliorate the repercussions of the financial crisis. The notion that markets are efficient seemed to work well enough until the 2008 crisis. However, the crisis resulted in economics trying to adopt new lines of reasoning to explain what happened, resulting in behavioral economics.

The Role of Panic and Irrationality in Market Behavior

It tries to explain why panic in times of crisis may cause markets to operate inefficiently. The documentary illustrates how rationality fails using the example of a $20 bill auction. While the highest bidder gets the bill, the second highest also pays while receiving nothing. The bidding war results in two bids above the $20 mark which reflect irrationality. In this case, the fear of loss is responsible for the behavior.

The Importance of Balancing Rationality and Individual Thinking

In conclusion, while the assumption of rational behavior in economics plays a significant role, given that it forms the basis for most theories and, therefore, can not be disregarded, economists should consider the impact of the thinking of an individual. While the documentary tries to show that the 2008 financial crisis resulted because of relying on the wrong market model, economists must always ensure they do not act on impulses that might be misleading. Striking a balance between rationality and understanding the mind would play a significant role in predicting and preventing a future crisis.

Reference

Clark M. (2013, February 9). Mind over money. FullyFundedTrader. Retrieved from https://www.youtube.com/watch?v=6sjtidkYAec