David A Tuckett
Visiting Professor, Psychoanalysis Unit, University College London, Training and Supervising Analyst, British Psychoanalytic Society, UK
Richard J Taffler
Professor of Finance and Accounting
Cranfield School of Management, Cranfield, UK
Abstract
The meteoric rise in share values in Dot.Com companies and then their equally spectacular fall is a well-documented example of a bubble. During it asset values altered spectacularly although most of the companies concerned were always and quite transparently losing money.
Over many months during the Dot.com bubble shares in the Internet sector became so desirable to possess that investor valuations of them were sustained despite their values being extraordinarily out of line with the underlying balance sheet realities that were well known at the time. Any adequate theory must account for how prices could remain so high so tenaciously - particularly given what was well known about the accounting realities of shares in this sector, which were frequently the topic of readily available sceptical analysis and comment.
We hypothesise that the main explanation for what happened to investors buying and selling shares during the dot.com bubble is that as a group they became caught up emotionally in their activity in a complex and layered way. The general operation of greed and fear in financial markets has become widely accepted but has not hitherto been examined from the point of view of unconscious psychic reality. We shall suggest that in fact Internet stocks became subjectively mentally represented in a widespread way as what we will describe as infantile 'phantastic'(1) objects and this had very considerable consequences.
The starting point for our thesis is that in psychic reality Internet stock certificates became more than unusually highly desirable because in conveying ownership of a dot.com company they became, in a compelling and hard to resist way, a particular type of 'phantastic object' for investors; one felt able, magically, to be capable of transforming an individual from a normal kind of existence into a super one. The transformation corresponds to one psychoanalysts suggest is wished for in early human mental development, and by being retained unconsciously never entirely given up.
Our reasons for thinking it useful to understand the valuation process in the case of Internet stocks in terms of a theory of unconscious mental representation rest on examining what might have been happening in psychic reality in five different phases of the dot.com affair.
First, we propose that Internet stocks were quite easily represented in the minds of investors as alluring phantastic objects because this is how they seem to have struck those who publicised their existence, as they emerged into public view in the first 'boom' phase of the bubble.
Second, we think that as 'phantastic objects' they stimulated a headlong euphoric craze in the second phase of the bubble because they had a particular power to stimulate further compulsive behaviour driven by unconscious intergenerational as well as intragenerational rivalry.
Third, and crucially, we consider they could remain for many months tenaciously valued in a contrarian way (i.e the more the company was losing the higher its share price), despite growing evidence that this might be foolish, because when the normal valuation criteria of material reality are applied to phantastic objects they are not necessarily salient, due to the specific ways phantasy representations are maintained in psychic reality.
Fourth, we think the value of Internet stock disappeared over night not just because everyone was selling them but because they had gone so absurdly high that once the contrarian logic holding the price up was no longer underpinned by their unconscious status as revered phantastic objects, Internet stocks became hated and despised objects, actually felt to have let down their owners and potentially to stigmatise them.
Fifth and finally, once widely disposed of in the terminal phase, Internet stock can be seen as lost phantastic objects, which create psychic pain, which is hard to bear. A consequence is that investors may have wished to forget all about their previous 'phantasies' and not to wish to be reminded of them. This may create prejudice against valuing the sector rationally subsequently with implications for companies remaining in this sector and for learning from the experience. It is in fact our personal belief that the current difficulty in world stock markets may be causally linked to the outcome of these events.
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1) What exactly we mean by a 'phantastic' object is an object of perception whose qualities are primarily determined by an individual's unconscious beliefs or phantasies. The term 'phantasy' is a technical one implying the existence of organised unconscious ideation "an imaginary scene in which the subject is a protagonist, representing the fulfilment of a wish (in the last analysis, an unconscious wish) in a manner that is distorted to a greater or lesser extent by defensive processes" (Laplanche and Pontalis, 1973: 314). It is, therefore, a technical term more specific that the commonly used word 'fantasy' which tends to denote notions of whimsy or eccentricity. In psychoanalytic thinking unconscious phantasies are the driving force of all significant human subjective experience.