Financial Market Paradigm Shifts and Consumer Financial Spinning

Abstract

This article uses a humanistic paradigm and its four-drive theory as an analytical tool to signal occasional paradigm shifts from economistic, to humanistic, to predatory markets. In predatory market conditions (so-called “predatory mortgages,” for example), the drive to acquire may be distorted to generate dysfunctional financial behaviors, so that the markets then experience increased friction. We provide the results of an empirical study that differentiates predatory paradigms from non-predatory paradigms (either humanistic or economistic). Market agents in predatory markets build debt based on risky behaviors, disconnection from their needs, goals, and preferences, through the so-called “consumer financial spinning.” In stark contrast, consumers in non-predatory market conditions build debt based on deceit and disconnection alone. Our analysis may assist marketers at banking, financial, and regulatory organizations to reinforce the quality monitoring of their services through, for example, in-house surveys, and to better understand the risk of dysfunctional behaviors that borrowers may represent depending on which of the three market paradigms prevails.

Keywords:

• financial crisis
• predatory mortgages
• four drives
• consumer financial spinning
• wheel of misfortune
• risk

JEL Classification Codes:

• A12
• A13
• B50
• D12
• D40
• G51

Disclosure Statement

The authors confirm that there are no relevant financial or non-financial competing interests to report.

Notes

1 The four-drive theory was originally meant to analyze motivation in different settings, notably where market agents deal repeatedly with each other.

2 A vivid contemporary example is the recent Reddit-Robinhood frenzy that has the U.S. market questioning over-speculation.

3 U.S. Census Bureau and World Bank, Accessed Feb. 16, 2020.

4 It is beyond the scope of this article to describe these deceptive actions. Plenty of evidence has been provided in the government and academic literature. See, for example, Ben-David (2011).

5 For example, in the United States in 2016: accounting firms (Deloitte Touche Tohmatsu (DTT), Ernst and Young (E&Y), KPMG, PricewaterhouseCoopers (PwC), Bank of America, Citigroup, Wells Fargo, and JPMorgan Chase); credit card firms (American Express, MasterCard, and Visa); insurance companies (AIG Fannie Mae and Freddie Mac); large investment banks (Goldman Sachs, Lehmann Brothers, Morgan Stanley, Bear Stearns and Merrill Lynch); and rating agencies (Standard and Poor’s, Moody’s and Fitch). The financial sector was under the helm of some twenty firms for 80% of its activity.

6 Note: CFS should be differentiated from spinning as a strategy used in Initial Public Offerings, spinning messages in marketing, and even spinning in the automotive industry. CFS refers to a disconnection from NGPs and its consequences.

7 Working measures of consumers’ sentiment in the financial markets are available, examples being the VIX Index, and the Consumer Confidence Index established by the Conference Board. These measures address consumers’ sentiments on a macro-economic scale, but do not deal with the psychological underpinnings of consumers’ financial motivations at the individual level. They do not measure the four drives, which are an individual, psychological phenomenon.

8 https://prolific.co/. Accessed January 15, 2022.

9 www.desjardins.com/a-propos/desjardins/index.jsp. Accessed January 3, 2022.

Additional information

Notes on contributors

Olivier Mesly

Olivier Mesly is associate professor at ICN School of Business in Nancy (Department of Marketing) and guest professor at University of Lorraine. He is a member of the Centre Européen de Recherche en Économie Financière et Gestion des Entreprises (CEREFIGE).

Nicolas Huck

Nicolas Huck is associate professor at ICN School of Business in Nancy (Department of Finance). He is a member of the Centre Européen de Recherche en Économie Financière et Gestion des Entreprises (CEREFIGE).