Behavioral finance FAQ / Glossary (Manipulation)
This is a separate page of the M section of the Glossary
Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed, i: incidental
(market) Manipulation, manipulate.
00/5d,8i,11i,12i - 01/1i,5i,12i - 02/4i,8i,9i
- 03/11i + see deception, information, disinformation,
cognitive manipulation, propaganda, deception, gurus,
foot in the door, pump and dump signaling, framing,
illusion + bfdef2
Please, take your hand off my brain!
And out of my pocket!
To manipulate people is:
To present, frame , alter or hide facts...
...in a way that induces them to think and/or to behave...
...according to the manipulator's agenda.
It is that intention that makes the difference
Whatever the similarity between
* The actions of those manipulators
* The tricks used by entertainers (conjurers, comedians...).
About everybody, starting from infancy, tries to manipulate everybody, with good or bad intents.
Where there is money, there is an incentive to make it change pockets,
by fair or devious means.
Financial market manipulation tries usually to influence asset prices,
with the purpose to bring to the manipulator unfair market gains taken from other people' purses.
In financial market, the illusion is usually created
either by rigging information on assets,
or by rigging their prices directly.
It is difficult to find the border between spin, manipulation and
deception (see those words).
Manipulation, at least in its "hard" form, tends to use deceptive
methods such as lies and false appearances.
Financial manipulation is obviously unethical and illegal.
But some financial manipulators, and sometimes whole classes of them (*), bypass the law.
Their purpose is to boost (so as to sell high) or to lower (so as to buy low) an asset
price that would not deserve it.
(*) Financial deception can become massive if an informally collusive pyramidal system
takes over the whole financial industry.
That was the case in the "subprime loan crisis" and other related financial deceptions,
a cancer with metastases in the whole monetary, banking and financial system.
Even official institutions that were supposed to protect from
those manipulations, in fact fueled and encouraged them, as was the case for
the lax US monetary policy and the practices of official US mortgage institutions.
Effects on investors, markets, the economy...
Riches diverted to wrong pockets.
Market manipulation has two negative effects:
Harm to investors, as seen in the "deception" article,
They might overpay a manipulated asset which prices has been artificially
boosted, or sell one at an artificially depressed price.
Economic inefficiency in the allocation of resources.
It can go as far as bringing general economic hardship.
Among other economic imbalances, the above-mentioned subprime crisis
was a key factor (albeit not the only one) in the ensuing global recession.
What techniques do market manipulators use?
There are endless ways to create illusions and bait people.
Manipulators only show you what they want you to believe.
Two main sets of techniques, let us say tricks, are usually used by marker manipulators
(for further details on the who, why, how and when, see "deception"):
1) Rigging the information (spin, disinformation, framing...)
in order to influence investor behavior.
This is done by: :
Either directly giving false or misleading information (see disinformation),
Or repeating such falsities, until they look like truths.
When some information or opinion is repeated like a slogan or mantra, even
by the same person, it tends to become familiar and to seem true and relevant.
Or omitting or bending truths.
Or at least insisting on the sensational news so as to leave in the shadow
more important ones (see weak signals, deception),
Or baiting with a rhetoric, based on cognitive and often emotional tricks such as:
Logical fallacies, framing, red herrings, story-telling
Phrases, pictures or whatever other reductive representations that play on
either greed or fear / pain or pleasure...
Various information channels might be used: traditional media, newsletters, internet
spam, advisers, word of mouth (viral communication)...
2) And / or rigging directly the market prices / trends / signal.
This is done by launching artificial buy or sell transactions.
What are the manipulators' preferred targets and timing?
Mind you, what follows are not advises for apprentice sorcerers and
The purpose of this article is to incite investors to be observant, to avoid
to follow lures and fall into traps.
Of course not to the extent to counter-manipulate people into fear and
Hard to find a balance, isn't it?
1) Some market targets make things easier for manipulators:
It is rather easy to manipulate the prices of small cap stocks, by using
"pump and dump" (see that phrase), or other red herrings,
On the other hand, to manipulate a large and highly liquid market, a dishonest individual
needs either important clout or means, or to belong to a powerful group (collusion).
But an entire crowd or a sizeable segment or population or organizations might
also self-manipulate. This was the case for the most leading financial institutions
that accepted as bona fide financial instruments based on subprime loans.
2) Also timing , as finding the "psychological moment"
when "minds are ripe", is part of the tactics.
Thus a manipulation works "better" when:
It fits common beliefs and expectations, current emotions and cognitive biases,
And / or it is applied when the common investor mood (see mood) reaches
the "bifurcating / inflexion / tipping point" or "percolation threshold"
(see those phrases).
It is the moment when the trend seems ready to change its course as soon as
a small opportunistic nudge "helps" that bifurcation.
(*) To find those messages: reach that Behavioral-Finance group and, once there,
1) click "messages", 2) enter your query in "search archives".
Members of the Behavioral Finance Group, please vote
on the glossary quality at Behavioral-Finance/polls