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Fear, Greed and Animal Spirits: When spontaneous optimism replaces fear

October 7, 2009

I was recently reminded of the economic idea of Animal Spirits, which is perhaps the holy grail of consumer confidence.  We look forward to your comments.

Fear and Greed are market drivers

Fear and Greed are market drivers

Anybody that has attended a handful of weddings knows 1 Corinthians 13:13.  It ends with these lovely words, “…And now these three remain: faith, hope and love. But the greatest of these is love.”[1] It is interesting that the King James Version of the Bible replaces Charity with the word Love.  Charity is an economic idea, and we have an economic assertion to make.  Let’s make believe that Adam Smith, Milton Friedman, and John Maynard Keynes are the saints in a little economic sect.

If there were a modern economic bible written by John Maynard Keynes, we think much of the message would be about Fear, Greed and Animal Spirits.  Keynes defined Animal Spirits as follows:

“Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”[2]

For a while real estate sellers and buyers have been dominated by fear.  Sellers fear losses, uncertainty, credit damage and even homelessness.  Buyers mostly fear missing the bottom.  Fear is a powerful emotion. It gums up the wheels of commerce, limits good will and creates other unfortunate neuroses.  It is so pervasive, whole markets have penalized measured risk and a flight to quality has prevailed.

Is Greed any better?  Of course when Michael Douglas’ character in the movie Wall Street says “greed is good,” he was wrong.  Greed is bad. It leads to various moral and economic imperfections.  Greed and fear is so strong that alas humanity fails to escape it shackles and economic markets perform.

Mr. Market is mean – often ambivalent to emotions and moral design.  Mr. Market cruelty is that he attempts to balance greed and fear to make markets perform.  Mr. Market has typically rewarded risk until recently. Markets stopped September 2008 and they are starting to work again.

Real estate is not a liquid investment.  It has appeals to risk takers across many economic status and cycles.  It is the type of investment that because of its capital intensity and subjective decisions requires considerable initiative.  It requires a strong set of beliefs and preferences.  It requires optimism and has an array of unique benefits.  In short, it requires Animal Spirits. 

Fear’s dominance in today real estate market is starting to abate.  It abates as Animal Spirits asserts itself with confidence about intrinsic property values.  Where are your animal spirits?


[1] THE HOLY BIBLE, NEW INTERNATIONAL VERSION®,

Copyright © 1973, 1978, 1984 by International Bible Society®

[2] John M Keynes, The General Theory of Employment, Interest and Money, London: Macmillan, 1936, pp. 161-162.

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One comment

  1. […] Please click here for the entire article on the Heery Brothers’ blog. […]



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