Anyone who's seen a stock market meltdown or a bank run, knows that fear seems to move markets.
But scary movies?
People watching horror flicks turn out to make more fear-induced investing decisions than those who watch documentaries or action films. And they tend to believe others share their fearful notions.
Those are the conclusions of two researchers at the University of California, Berkeley, business school. If investors get fearful, they write in their study (.pdf) published in the Journal of Marketing Research, there's method behind their actions.
"People tend to rely on their own emotional state to predict other people’s behavior, which in turn affects their own actions," conclude authors Chan Jean Lee and Eduardo Andrade. "In the stock market, a scared investor who is initially inclined to favor the certain action (i.e., sell the stock) will be more likely to believe that others share the same action tendency, which in turn will lead him or her to accelerate selling behavior in anticipation of a drop in the value of the stock."
By showing some of their test subjects scenes from movies like "The Sixth Sense," "The Ring," and "The Exorcist" – and others, scenes from documentaries and action films – the researchers found that those exposed to the horror movies tended to think and act more fearfully. When these people played a stock market game following the movies, they projected their own negative emotions on the other investors in the game.
That led to early selling unless – and here's an interesting twist – they thought that computers and not people determined the price of their stock. Then, they didn't act on their fear and sell earlier than the rest.
So what does that mean? Should we put the computers in charge of the markets?
Of course, some analysts believe the machines are already in charge. And if they are, that hasn't helped matters. Last year's flash crash became the largest intraday point decline in the history of the Dow Jones average because of computers, not people.
So maybe the moral is: Don't put the computers in charge. Just make it look as though they are.
And please, no Halloween-style fright-night movie screenings on Wall Street. The daytime action has been scary enough.