Emotional Economics - Boom and Bust Cycles
"There's a bubble!"
Have you ever had the eerie feeling your life is going too well? Like it was a bubble with a severe market correction due at a nebulous but inevitable point in the future?
Here’s the classic investor hype cycle (the Gartner Cycle):
That’s how it goes: a technology company builds up a hype cycle to pump their bags, usually with buzzwords and slide presentations that obscure their internal plan of action. These investor expectations are inflated to the peak (bags fully pumped!) and then the cracks start to show that the bags were pumped full of deception! The stock slips down drastically as many people sell (It’s So Over), then people buying the stock for cheap get in and the stock stabilizes into the Productivity Plateau (We’re So Back) (which is hopefully more reflective of the actual value of the company’s fundamentals!).
If you’d like to know how I view short-term investors/quant bots, see this picture:
I find that my emotional moods follow a similar function; I’ll become somewhat excited to learn something, get excited, throw a party. Then, at the top, reality sets in and I get a little deflated. However, after integrating all the past emotional information from the previous places, I find myself in a slightly more informed, new stable place.
You may have noticed that the Plateau of Productivity ends at a higher Y-level than the graph begins (where it says Technology Trigger). Do you find that interesting?
If I pull back the timeline on my emotional states, it turns into a fractal of these charts, repeating over and over. The overall trend, however (any technical analysis folks here?) is a positive slope. The amplitude or the frequency might vary a little, but this is generally how my mood goes. The Plateaus are higher than the Triggers, which are then surpassed by the following Plateaus. I would call this an Information Staircase.
Looking at this, isn’t this a bit… worrying though? From the graph, it seems as if your emotional state might be becoming “Overvalued”, you’re just getting more and more hyped up. Aren’t we eventually due for some kind of ominous crash here?
That’s the problem I’m grappling with. Life just keeps getting better and better, and it’s hard for me to fully enjoy it because there’s like a tiny little Mark Baum (who looks like Steve Carell, not the real Baum) in my head asking me how I’m preparing for the Big Short, whatever that might look like.
UNTIL THAT DREADED DAY ARRIVES THOUGH??? FUCK IT, WE BALL!!!
