Paul B. Farrell: Why investors are helpless against Wall Street’s secret brainwashing machine

Yes, the new behavioral economics is Wall Street’s secret mind-control brainwashing machine. Call it behavioral economics, psychology of investing, the new science of irrationality, it is Wall Street’s most powerful weapon because you can’t see it. They even try to make you think they’re helping you. Bull.

Behavioral economists used to be guardians of America’s 95 million Main Street investors, with an aura of integrity, professionals with a fiduciary responsibility. No more. They’re the investors’ enemy, working for Wall Street banks, for Washington politicians, operating in the shadows, like the NSA, developing tools and technologies to secretly control data, manipulate the brains of savers, voters, taxpayers and investors.

Don’t believe me? At first, I couldn’t believe the con game. Back in 2002 when Princeton psychologist Daniel Kahneman won the Nobel Prize in Economic Sciences we were hopeful. He disproved Wall Street’s oldest fraud, the myth of the “rational investor.” We cheered. Kahneman’s research that proved investors were never rational … are in fact irrational … always have been irrational … and we always will be irrational.

At first we assumed humans can change — we can still educate ourselves to be more rational. We even assumed Wall Street’s behavioral economists would help us become “less irrational.”

Fat chance. Since then, behavioral economists have been capitalizing on their newfound power to get personally richer: Getting research grants, speaking fees, university professorships and, of course, consulting contracts with Wall Street banks, Corporate America and Washington politicians.

What did we get? In recent years many of their books resemble high school level self-help “Psych 101” books with cute titles like “Freakonomics,” “Nudge,” “Sway,” “Animal Spirits,” “Blink,” “Blunder,” “Beyond Greed & Fear,” “Predictable Irrational,” all cleverly packaged for mass-market consumption, all with implied promise that their book will make you less irrational, ready to beat the Wall Street casino.

Unfortunately, since 2002, behavioral economics has failed American investors, instead of helping us, Wall Street is using behavioral economics to control and manipulate investors in five dark ways:

1. Behavioral economics promises to make you less irrational. Wrong

What is the “promise?” Very simple: Behavioral economics promises that if investors (as well as taxpayers, voters and consumers) simply follow the advice of the new behavioral economics, they’ll be “less irrational,” more successful investors, and you’ll become richer. Your 401(k) and your retirement portfolios will prosper because behavioral economists promise to make you “less irrational,” more in control of your emotional brain.

Warning, that’s never going to happen. Never. Not because all these books are based on junk science, anecdotes, big conclusions from small samples and pretty brain scans calculated to mislead you … Not because the human brain is genetically “irrational,” incapable of reprogramming itself … Not because our brains have an irrational hemisphere in conflict with the rational hemisphere … And not because our brain has an irrational fear of becoming a robot like in “Blade Runner,” “Star Trek” Borg, “1984,” “Fahrenheit 451” and “Terminator.”

All that may come true, but there is a more accurate and far more dangerous reason the human brain is irrational, gullible and so easy to manipulate. The simple reason is that behavioral economics is based on two false premises: That humans are born rational and even if we slip, we can reverse that program, educate and become “less irrational.” Wrong.

Worse, the truth is the more we learn about how irrational we really are, the more we dupe ourselves into believing we’re in control, acting rationally, even when we’re not. Remember, 88% of our investing behavior is driven by the subconscious, stuff we don’t know, can’t even admit it’s controlling us, stuff quants and behaviorists can secretly code into personality algorithms that predict our behavior in advance, so they manipulate us into making bigger, more irrational decisions. Yes, your brain really is your worst enemy.

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