Behavioral finance FAQ / Glossary (Manipulation)

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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!

Definition (general):

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.

Financial manipulation

Where there is money,
there is an incentive to make it change pockets,
by fair or devious means.

Definition (what is it?) :

Financial market manipulation tries usually
to influence asset prices, so that the manipulator get unfair market
gains taken from other people' purses.

In financial market, usually, the illusion is
created
either by

* rigging information on assets,
* or 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 /
clans 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?

Card tricks.

 
There are endless ways to create illusions and bait people.

 Manipulators restrict what they show you to what they want you to believe.

 Two main sets of techniques, let us say tricks, are usually used by market
 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: :

Lying

Either directly giving false or misleading information (see
    disinformation),

Still worse, repeating such
    falsities, until they
look like truths.

When an 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.


Baiting

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 are 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 spin doctors!


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 paranoia.

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, via
   "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 of population or an
organization might
also
self-manipulate.

This was the case for the most leading financial institutions that
accepted as bona fide intricate 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 BF group and, once there,
     1) click "messages", 2) enter your query in "search archives".

Members of the BF Group, please
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This page last update: 01/08/15  

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