Dealing With Scary Mr. Market

Epley has also found that people are more likely to anthropomorphize when they are feeling lonely. It is as though seeing humanlike qualities in inanimate objects and systems can give us a sense of social connection.

Is the idea of wearing a barrel and eating peanut butter soup making you feel isolated?

"In the same way being deprived of food makes you hungry, and eating makes you feel better, so, too, when you are deprived of predictability and social connection, anthropomorphism can be satisfying," Epley says.

"The most impressive aspects of the human brain involve making sense of our social environment," says George Loewenstein, a professor of economics and psychology at Carnegie Mellon. "It's natural when we confront the inherently incomprehensible. We often talk about countries as if they are individuals.

"We're going to use these highly developed faculties to try to make sense of the situation. The positive side is that the moment we think of it as a beast, there's a vast array of computing power that we bring to bear on this complex problem. The downside is the extent that the market doesn't operate anything like a beast, a coherent creature. We are bringing an interpretation to it that doesn't really apply."

In an unusual set of experiments published earlier this year in the journal Organizational Behavior and Human Decision Processes, Columbia University business school professor Michael Morris showed that up markets are more likely to be given human characteristics than crashes.

We have the Dow "fall like a brick" but "climb to a new high." You see the financial markets "drop off a cliff" -- an inanimate object moving as a result of gravity -- but "recovering lost ground."

"There is a lot of evidence that our brains categorize something as animate or alive to the extent it moves in ways that a physical object can't," Morris says. "One cue that something is alive is if it moves uphill. Rocks never roll uphill. If you see something rolling uphill, you make an ontological judgment that the thing is alive."

Morris found that anthropomorphizing markets has serious risks. Volunteers who heard market movements described in human terms were more likely than those given inanimate descriptions to believe that market trends were likely to continue. A central hallmark of successful investing, of course, is to buck trends: to sell when everyone is piling on, and to buy when everyone is fleeing for the exit.

If people must anthropomorphize the markets, Morris and his colleagues recommend the advice given in Benjamin Graham's classic book, "The Intelligent Investor": Think of "Mr. Market" as a person suffering from manic-depression.

A half-century ago, Graham wrote: "Mr. Market comes to your door every day with an offer to sell a company, sometimes Mr. Market is manic and he asks far more than it is worth; sometimes he is depressed and asks far less than it is worth."

Of course, in times like these, the stories sometimes make no more sense than reality.

"I have to remind myself," says Carnegie Mellon's Loewenstein.

"Which is the bear and which is the bull?"