Olivier Mesly

In this provocative, exploratory article, we enrich the emerging concept of consumer financial spinning by first analyzing the US market at the time of the Global Financial Crisis, when it was filled with avid, sometimes naïve mortgage buyers, to outline the phenomenon of consumers becoming desensitized to risk, but remaining responsive to marketing “sweetheart deals” (sweeteners) aimed at luring them into buying houses repeatedly. They thus enter into a vicious circle of debt. In line with the data percolation methodology, which recommends looking at a new phenomenon from contrasting analytical angles, we then conduct a virtual reality test to see if we can artificially induce such behavior. Based on our bi-angle results, we highlight the role of questionable marketing and legal practices that entice consumer spinning, thus calling for macroprudential measures, given that past and current regulations have missed the opportunity to fully protect consumers in this regard.

In this challenging and innovative article, we propose a framework for the consumer behavior named “consumer financial spinning”. It occurs when borrowers-consumers of products with high financial stakes accumulate unsustainable debt and disconnect from their initial financial hierarchy of needs, wealth-related goals, and preferences over their household portfolio of assets. Three behaviors characterize daredevil consumers as they spin their wheel of misfortune, which together form a dark financial triangle: overconfidence, use of rationed rationality, and deceitfulness. We provokingly adapt some of the tenets of the Markowitz and Capital Asset Pricing models in the context of the predatory paradigm that consumer financial spinning entails and use modeling principles from the data percolation methodology. We partially test the proposed framework and show under what realistic conditions the relationship between expected returns and risk may depart from linearity. Our analysis and results appear timely and important because a better understanding of the psychological conditions that fuel intense speculation may restrain market frictions, which historically have kept reappearing and are likely to reoccur on a regular basis.

Predator–prey dynamics are widely used in ecology but seldom utilized in economics and marketing, despite their ability to express financial market agents' behaviors when considered in combination with economic cycles and financial crises. This multidisciplinary article presents a stylized framework of a market cycle that combines the notions of supply and demand and predator–prey interactions between buyers and sellers of housing mortgages. We illustrate our framework using data from the Global Financial Crisis and a Lotka‐Volterra predator–prey model. We find that with our framework we can capture the dynamics of the market, particularly the peak and decline in the number of sellers and sold subprime mortgages. Our framework sheds a new light on consumer behaviors, pinpointing how they can put themselves into vulnerable prey positions. This article is one of the first of its kind to propose market phases and predator–prey dynamics nested in economic cycles and consumer buying trends.

The present article introduces the concept of consumer spinning. This occurs when consumers have lost track of their initial motivation to consume and engage unwittingly in hamster-like spinning in a “wheel of misfortune”, being encouraged to spend through sweetheart deals and thus incur debt without even realizing it. This article takes for example the Global Financial Crisis of 2007-2009 (GFC) during which the use of such sweeteners by sellers of predatory mortgages and advocates for lax regulations led U.S. consumers to spin and, in the process, ignore the debt trap they were falling into. We discuss the results of a functional magnetic resonance imaging (fMRI) experiment we conducted to test the ratio of greed over risk aversion and the hypothesized phenomenon of spinning. We believe that this is the first academic attempt to examine spinning resorting to an experimental tool used regularly in neuroscience and psychology research. Our framework indicates that government regulators should take the role of marketing sweeteners into account when devising policies. Marketing managers, who strive to educate consumers and help them reduce their debt load, thus promoting better purchasing power, stand to benefit from an understanding of these possible spinning behaviors and adapt their campaigns accordingly. We believe that there should be legal consequences for encouraging consumer spinning, as this at times may be an intentional and deceitful invitation for consumers to harm themselves financially.

More and more, investors are solicited to invest in projects of all sizes. Companies like Apple rely on and operate based on projects. Bankers, in particular, are regularly presented with many projects in which they have to decide whether to provide funds or not, not always knowing what to expect in the end. Financials are not enough; investors want to know and contemplate the inner aspects of the project as it will materialize. This article reports the key criteria in ensuring project management success and proposes the creation of an emergent model following the guidelines associated with grounded theory.