Phantastic objects and the financial market’s sense of reality: A psychoanalytic contribution to the understanding of stock market instability1


  • 1

    The authors are grateful to Liz Allison, Alan Budd, John Kay, Mervyn King, Gabriele Palma, Neil Smelser, David Taylor, Jeremy Vooght, the Editors and four anonymous reviewers for this journal for their time and generous comments on earlier drafts of the manuscript. All faults and errors that remain are the authors alone.

  • 3

    Compare the historical account of the major role psychoanalysts played in aspects of the second world war and its aftermath (King, 1989) with more recent (themselves quite rare) efforts to explore ways it can contribute to socio-economic or political situations – for example, Altman (2005), Eizirik (1997) or Kernberg (2003). An exception is Steinberg, 1991.


This paper sets out to explore if standard psychoanalytic thinking based on clinical experience can illuminate instability in financial markets and its widespread human consequences. Buying, holding or selling financial assets in conditions of inherent uncertainty and ambiguity, it is argued, necessarily implies an ambivalent emotional and phantasy relationship to them. Based on the evidence of historical accounts, supplemented by some interviewing, the authors suggest a psychoanalytic approach focusing on unconscious phantasy relationships, states of mind, and unconscious group functioning can explain some outstanding questions about financial bubbles which cannot be explained with mainstream economic theories. The authors also suggest some institutional features of financial markets which may ordinarily increase or decrease the likelihood that financial decisions result from splitting off those thoughts which give rise to painful emotions. Splitting would increase the future risk of financial instability and in this respect the theory with which economic agents in such markets approach their work is important. An interdisciplinary theory recognizing and making possible the integration of emotional experience may be more useful to economic agents than the present mainstream theories which contrast rational and irrational decision-making and model them as making consistent decisions on the basis of reasoning alone.