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Archetypes & Financial Bubbles

Research

We Think In Archetypes

The interesting aspect of humankind is that we act in accordance with both our conscious mind and our unconscious. The scientific evidence does find that we are unknowingly affected by our unconscious, even though it does affect our behaviors and decisions we make (Dijksterhus et. Al. (2005), Augsto (2010), Bargh, et. Al. (2008)). However, the tricky part is that the unconscious mind is much harder to track as we live our lives and it typically can only be observed in hindsight. If we are to attempt to track our unconscious mind, we must identify patterns and behaviors that the conscious mind displays. Famous psychologist Carl Jung invented the idea of archetypes to describe our repeated use of symbols and motifs in literature, art, or mythology to display our unconscious thoughts.

Archetypes: The concept of an archetype appears in areas relating to behavior, modern psychological theory, and literary analysis. An archetype can be a statement, a pattern of behavior, or prototype which other statements, patterns of behavior, and objects copy or emulate.

We can use these archetypes to predict all kinds of behavior, even the financial market, as this is largely emotion based and can be affected by societal norms and trends.

Breaking Down Archetypes

Jung argues that archetypes are the basis of our cultural shifts and societal trends. Science has backed his claims with surprisingly high amounts of congruity to his theories. Archetypes can be categorized as certain philosophies or personality traits that we stereotypically follow as general guides in our lives. These personalities can be assigned to most anything human-made, for example here are the archetypes and their relating company archetypal assignments:

company and brand archetypes

Here are the definitions of each archetype:

  • The Innocent: “wants to be happy” An innocent brand will never try to aggressively sell you on anything. Instead, it will try to reel you in on the idea of nostalgia.
  • The Hero: “wants to prove himself” The hero will attempt to make the world better by simply being the best. They don’t resemble mother like characteristics of nurture, instead, it presents a more masculine trait of challenging you and giving you help when you need it most.
  • The Regular Guy: “wants to belong” The regular guy attempts to appeal to everyone and refuses to be pretentious or unique. It is the most difficult archetype to pull off because, in order for a company to present the regular guy archetype, they must appeal across demographics.
  • The Caregiver: “wants to nurture” Benevolent and simply wants to be there for you. They won’t run advertisements that take shots at competitors, and these brands build trust. Tend to be companies that state they are ‘a family company’.
  • The Creator: “wants to be perfect” A creator makes things at scale and doesn’t worry about the cost of things. Creators strive to make products you feel you can’t live without and tend to have cult followings.
  • The Explorer: “wants to be free” Explorer brands want you to break free of what we might consider home and go everywhere. Subaru is an example of the explorer archetype as they focus on the freedom to go anywhere no matter the weather conditions.
  • The Rebel: “wants a revolution” The rebels aren’t afraid to go where no brand has gone before. In fact, they want to go where no one dares go, and they desire a cult following similar to Apple.
  • The Lover: “wants you to be theirs” Pleasure, passion, and sensuality are the main characteristics to the lover’s heart. These brands like to be associated with the intimate moments in life and indulging on your significant other.
  • The Ruler: “wants absolute power” These brands represent luxury and exclusivity. Their perception is vital to their success and they demand to be seen as high-quality. Jewelry and high-end vehicles fall under this category.
  • The Jester: “wants to live in the moment” Characteristics of the jester involve humor, silliness, and nonsense. They want to make you smile and laugh. Other examples besides Skittles is the Old Spice Man ad campaign. By joking about masculinity, they appeal to both consumers whether or not they appeal to masculine or non-masculine products.
  • The Magician: “wants dreams to come true” Magician brands help make your wildest dreams come true. They don’t attempt to make life’s dullness easier, they instead go around this and jump to giving you the impossible.
  • The Sage: “wants the truth” Wisdom is key to success to the sage, and the pursuit of knowledge is the goal. They don’t have the same mystical vibe as the magician but instead command respect by illustrating brilliance.

America and Capitalism

Capitalism and politics are major intrinsic parts of this nation. America has played into the non-rational impulses of the stock market and economy at large. These financial bubbles that spur mania at their heights and subsequent panics after the popping of the bubble “play a major part in collective human investment behavior” (Hageback). It is important to attempt to forecast the growth of bubbles as they produce great social and political unrest. Ben Graham, father of fundamental analysis, and investor Warren Buffet coined the name “manic-depressive Mr. Market” to describe market bubbles. John Maynard Keynes referred to them as animal spirits, and US Federal Reserve Chairman Alan Greenspan mentions them as “irrational exuberance”. Scholarly journal author Niklas Hageback writes his article with the context of Carl Jung’s work stating: “if these theories could be adapted into arithmetic expressions it would allow for statistical testing against the unfolding price patterns of financial bubbles”.

The Collective Human Investment Behavior

Jung’s research pointed him to additional dimensions of the mind. These additional dimensions are:

The Personal: unique to each individual.

  • The personal unconscious is defined by Jung as “lost memories, painful ideas that are repressed (i.e. forgotten on purpose), subliminal perceptions, by which are meant sense-perceptions that were not strong enough to reach consciousness, and finally, contents that are not yet ripe for consciousness” (Jung [1981a], vol 9, para. 103).

The Collective: a form of public opinion.

  • The collective is a combination of the “average person’s cultural and moral values into a set of societal beliefs, norms, attitudes, and mainstream politicalisms” (Hageback).

 

Jung argues that we are not born as a blank slate, and instead there are innate universal patterns that reside in our unconscious and that these patterns influence our thoughts and behaviors. This can have a biological base as genetic memories which have been coded into our DNA to survive over the millennia’s humans have existed.

These Patterns are Archetypes.

  • These archetypes stem from dreams, fantasies, hallucinations, visions, folklore, sagas, myths, and legends.
The Three Categories of Archetypes: as stated by Hageback & Stevens
  1. Events: Typical situations in life such as birth, death, rites of initiation, or marriage.
  2. Characters: Some of these include the mother, the father, the child, god, the wise man, and the hero.
  3. Objects: Including elements such as water, the moon, the sun, fire; animals such as the snake and the fish; and also, numerals and man-made objects such as the plow or the sword (Stevens, 2006).

This all stems from the idea that our minds are constantly trying to find equilibrium. The argument by Jung lays out that our minds will attempt to use archetypes to replace old conscious perceptions of reality with new ones, and the archetypes will then disappear after the unconscious finds equilibrium. The problem America seems to have is that our society keeps running itself into psychological imbalance through extrapolating momentum. This can be seen in the stock market whose collective behavior exhausts itself and pushes itself into the extremes. New norms are formed through this imbalance, and some of our desires become unacceptable by dominant conventions and norms.

What Activates these Mysterious Archetypes?

New innovations like A.I. or internet companies during the dot.com bubble “in some way drastically changes the way reality needs to be perceived, rendering existing psychical notions less suitable, and thus to be able to cope with reality, activations of archetypes deemed more suitable are initiated” (Hageback).

So, therefore, we can start to see archetypes as humanity’s way of psychologically handling a civilization of millions. Humans were initially tribal and had small groups of people that they would see for their entire lives. In today’s world, the things that connect us and maintain equilibrium around the world are common myths that rise into godlike territory that humans have deemed they cannot cross.

  • Example: the U.S. Constitution. The U.S. is an interesting experiment and idea of which we are one country united by 50 statehoods that all collectively abide by this constitution that we have deemed no one, not even the president of the United States, can rise above. This is similar to God in that we have determined that these things are above us and we can never attain power like the constitution or God. Continuing, these 50 states all are independent and thus, we have 50 simultaneous experiments running under the same myth so that even if 5 states are corrupted, the system can live on with some semblance of equilibrium and eventually bring those corrupted states back into the union (see The American Civil War).

The Consequences

Flare-ups of societal unrest can turn into demonstrations which turn into riots which turns into revolutions which turns into war if left unchecked by our collective energy and archetypes. We can forecast this behavior because these patterns exist from within us as a country. We simply must follow the cultural trends, and the financial market is the fastest way to determine trends in America. We can watch it in real time on the stock market exchange. We have even developed systems to monitor this change, and we call those indexes; collective repositories of the health of many companies that are considered leaders and can indicate a change in trends.

Projections, obsessions with certain themes, hysteria, and panics, are easily recognizable features in financial markets” (Hageback)

Projections are an interesting development of archetypes that are characterized by the need to reduce anxiety and create a scapegoat by pinning the consequences of any such negative action on to any person, group, object, theme, or situation that is the subject of the projection.

                Zeitgeists: the general societal mood, the collective conscious in Jungian parlance.

 

The Financial Markets

Bubbles form when Keynes’s “animal spirits” are high. We see that naïve optimism followed by rejection of naivety are the cornerstones of a bubble at its riskier phase. There are four phases of a bubble:

The Four Phases of a Bubble:

  1. Stealth Phase: The investors that tend to have access to information and understand markets better than most see the merging opportunity and invest their assets into this rising trend market.
  2. Awareness Phase: When other investors start to take notice of the momentum and push prices higher. The stealth phase investors take this opportunity to reinforce its investment.
  3. Mania Phase: When the public takes notice of what is happening, and they all jump onto the trend hoping to make a large sum of money. This is where a frenzy starts, and investors’ greed can start to quietly pull out and retain their assets.
  4. Blow-Off Phase: This is when everyone collectively realizes the situation they’re in. The paradigm shifts and many try to sell or unload their assets, however by now, there are few buyers. This is when the bubble pops and the market crashes.

Afterward, there are investigations into what went wrong, but the damage is there, and the market is hurt.

Why This Happens

A common mistake that occurs is during the mania phase the valuation of the asset is exaggerated. This is where any news whether it’s good or bad, is interpreted by investors as validation of the price level they are buying it at. This where investors desperately attempt to rationalize the exaggerated valuation. Hageback states “the most ardent proponents of the rationalism of this new paradigm that underpins the financial bubble are generally people most easily susceptible to hysteria or other neurotic conditions”. These fluctuations in the market resemble a noise signal which is explained in signal theory. The market is binary in nature like that of archetypes where it is either dormant or active (Bear market versus bull market). During the dot-com bubble, the thought process behind the poor investment strategy is as follows:

                Internet companies were seen as gambles that if one gambled enough, invested into enough companies, they would get lucky and make up for the losses.

How To Determine Symbols In Order To Identify Archetypes and Trends

  1. Focus on English speaking media.
  2. Include national, regional and global coverage.
  3. Note that political directions and affiliations are not dictated by the archetypes.
  4. Symbolic language is symbolic language. It does not matter whether or not it is in support or against a certain topic.
  5. Do not limit your search to just financial and political news.
  6. It does not matter what tense (past, present, future) the language is being used in.
  7. It does not matter if the symbolic word is used in an ironic manner. The unconscious does not consider negations.
  8. Make sure to count the repetitions of symbols that reside in the same body of text.
  9. It does not matter whether or not the symbol words is used in a singular or plural form.

 

Conclusion:

This abstract idea of archetypes is initially difficult to understand as it requires us to delve deep into the unconscious. The unconscious is inherently abnormal to think about as we perceive reality in the conscious mind. However, by studying how we behave and especially how we collectively behave, we can forecast where humanity will turn to next. These cultural shifts can predict not only the personal unconscious decision we make but the collective unconscious decisions we make even to the point of predicting the inflation and deflation of bubbles in the financial market. I encourage you to read more about Carl Jung’s work and continue to think differently.

- WPD

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Citations:

  1. Dijksterhuis, Ap, Pamela K. Smith, Rick B. van Baaren, Daniel H. J. Wigboldus. “The Unconscious Consumer: Effects on Environment on Consumer Behavior.” Journal of Consumer Psychology, 15, (2005), pp. 193–202.
  2. Hageback, N. (2017). Archetypes as Triggers of Financial Bubbles. Journal of Behavioral Finance, 18(1), 86-98.
  3. Stevens, Anthony. “The Archetypes.” In R. K. Papadopoulos, ed., The Handbook of Jungian Psychology: Theory, Practice and Applications (pp. 74–93). New York: Routledge, 2006.

 


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