Friday, December 12, 2008

Psychology of the Auto Bailout (or lack thereof)

A few thoughts about the auto industry bailout failure:

As Congress is considering this decision, there is so much baggage from past consdierations (prior bailouts, anger about SUVs and "sabotaged" electric cars, union pay and benefits, etc...). The emotional baggage is getting in the way of rationality.

Psychological research shows that facts and numbers are needed to make the best decision in such a situation. Grandstanding over ideology is what happens when no one has come up with clear numerical projections. Numbers such as: 1) how many people will become unemployed and their families will draw federal and state benefits? 2) what are the consequences of bankrupcy reorganization to employees, suppliers, and others? 3) What are the realistic future strategies of the companies? 4) Who are the creditors who will be hurt by bankruptcy?

These are useful questions, but under stress and uncertainty the human mind will latch onto emotional images without such numbers, often making worse overall decisions as a result.