O.H. Mowrer was a behavioral psychologist of some distinction during the middle part of the 20th century. He is not a central character of the CTN model I am going to lay out on this blog over the course of the next weeks and months but he does have a money quote that gets us thinking about similarities between irrational market participant behaviors and self-defeating experiences related to psychopathology.
Most simply formulated, it is a paradox – the paradox of behavior which is at one and the same time self-perpetuating and self-defeating! … Common sense holds that a normal, sensible man, or even a beast to the limits of his intelligence, will weigh and balance the consequences of his acts: if the net effect is favorable, the action producing it will be perpetuated; and if the net effect is unfavorable, the action producing it will be inhibited, abandoned. In neurosis, however, one sees actions which have predominantly unfavorable consequences; yet they persist over a period of months, years, or a lifetime.OH Mowrer, 1950
This might sound familiar to some risk allocators out there …