The Psyche
The model uses the Greek word Psyche to refer to the
full human mind in its widest sense. It is a very broad
term. Psyche is usually translated as ‘mind’ but also as
‘soul’, and can be translated in other ways too. We will
use a model of the Psyche as being made up of three
parts – using a Greek name for each: Nous, Logos and
Pyr.
Nous
Nous is translated into English in a variety of ways – as
mind, thought, ‘imagination for reality’, forethought,
intuition, reflection and the ‘mind’s eye’ amongst others.
We will use it to mean the mental picture of the world that
the individual is using.
Logos
Logos is translated as logic or rational thinking. It refers to
the type of rational logic that could be understood by all.
The function of Logos is to condition the mental picture
created by Nous – and the mental pictures created by the
Nous and Logos of others.
Pyr
Pyr is translated as fire, or ‘fire in the belly’, animal spirits,
drive or impulse. It refers to the light and energy used in
and by the Psyche.
Ego
The Ego is the individual, his/her self, as distinct from others. Ego is the Latin word for ‘I’. An individual likes to feel good about his/her self.
Healthy and Unhealthy Ego
The Ego is a filter through which an individual sees the
world.
An individual with a ‘healthy’ Ego tends to see the
world as it really is, and constructively tries to engage
with the world.
An individual with an ‘unhealthy’ Ego will use varying
degrees of self-deception to excuse or justify their
actions to make themselves feel better about the world.
Rationalisation
When an individual makes a judgment based partly on
the way they are and partly on the way the world is, this
is referred to as a rationalisation.
Rationality
Rationality is considered to be a spectrum rather than
an absolute. At one end of the spectrum is Logos:
dispassionate, neutral reasoning which in theory could
be understood by all, while at the other end would be
factually incorrect rationalisations, heavily distorted by
Ego.
The quality of the rationalisations will also be influenced
by the degree of Nous applied and the level of effort
(Pyr) applied in creating them.
Challenges engaging Nous
- Difficult to engage Nous – not a willful action
- Involves openness and a degree of uncertainty,
vulnerability and doubt – essentially the existing world
view may be shown to be deficient which is an
uncomfortable conclusion for many people. - Patience is also required as creating a better mental
picture is likely to take time. - Engaging Nous is regarded as an inward journey into the
Psyche, involving contemplation and reflection and
drawing from thoughts. - Involves becoming abstract which means a degree of
disengaging from the world. The individual’s Ego is likely
to be fighting against this: the individual’s Ego wants to
feel good, and is usually trying to create beneficial
outcomes from engagement with the world. - Disengaging, which can create psychological [Ego]
discomfort, and applying patience, has an opportunity
cost to the Ego. - Engaging Nous – uncommon and difficult
Challenges engaging Logos
- Difficult to engage because it requires discipline, effort
and rigor. - It requires concentration and is aided by an environment
that has a degree of stability, safety and an absence of
distractions. - The individual’s Ego is likely to be fighting against the
individual because the Ego may prefer a rosier, easier
and less realistic picture of the world. - The Ego would therefore prefer that less than the full
degree of discipline, effort and rigor is required. In this
case, the individual will mostly be applying
rationalizations, e.g. different types of excuses, rather
than Logos. These rationalizations make sense to the
Ego but from the perspectives of outsiders who have
engaged their Logos they will appear somewhat
irrational. - Applying Logos has an opportunity cost for the Ego
because it means applying relatively limited mental
discipline in one way rather than in other competing
ways. Furthermore, an individual’s capacity to apply
Logos is limited by the extent to which they have applied
Nous.
Challenges engaging Pyr
- Using Pyr is challenging because, using the analogy of a
fire, it needs igniting, good fuel and good air to create a
good fire. A good fire also needs to be stoked regularly to
keep the flame going to maintain the light and heat
coming from it. - However, from the Ego’s perspective, Pyr is dangerous,
just like fire, and if not managed properly, it can burn or
smoulder and create smoke. The Ego is typically inclined
to be risk-averse so inclined not to risk fully engaging
Pyr. Engaging Ego-defense mechanisms has an
opportunity cost due to the amount of Pyr needed to
operate them, reducing the Pyr available elsewhere for
the Psyche. - When the individual’s Nous or Logos are not engaged
resulting in an unrealistic mental picture of the world and
a somewhat irrational understanding of it, then the
individual’s Pyr, is likely to cause problems, because any
impulse-driven behaviour may have unexpected or
undesirable consequences. This can entail the individual
needing to manage or suppress their Pyr to avoid
creating problems.
Challenges engaging the Full Psyche
- The openness, uncertainty, doubt and vulnerability that
aid Nous are mostly in conflict with the stability, safety
and absence of distractions that aid Logos. This adds an
additional challenge to use Nous and to condition it well
with Logos. - Engaging Pyr is in conflict with engaging Nous and
applying Logos. Nous requires a degree of
disengagement of Pyr. And Logos requires disciplining it. - The best balance, to apply all three parts well, is likely
when the individual has a healthy Ego. This is likely to be
when Ego is behaving in a passionate but gentle manner
with a proportionate degree of humility. The passion gets
the fire going and the gentleness aids keeping the flame
going, maximizing the light and energy created, and the
humility prevents the Ego getting in the way of engaging
Nous or resulting in rationalizations instead of the
application of Logos.
Conforming
The individual who does not engage their Psyche beyond
their rationalisations, will passively rely on the narratives
(Nous) and on the analyses (Logos) of others. They can
do so by membership of groups and by conforming to a
variety of norms and ‘accepted wisdoms’.
Cost of conforming
Where individuals do not fully engage their Psyche this
will bring costs in terms of the Ego- defence mechanisms
used instead. These reduce an individual’s capacities for
engaging Nous because they create a closed-
mindedness and reduce their capacity for the openness
which is essential to engage Nous. The Ego-defence
mechanisms also distort their use of their Logos.
By conforming and joining a group, an individual will
become part of the Group-ego. The Group-ego is a
similar concept to the Ego. Those in the group see things
partly the way the world is and partly the way the group
sees them.
Consequently, they will be additionally subject to Group-
ego defence mechanisms, rationalisations to aid the
group feeling better rather than the way it would feel if it
saw things as they are. These further reduce the
individual’s capacity for engaging Nous and further
distort their use of Logos.
Individuals in groups may find resistance when trying to
move discussions away from its shared narrative.
Benefits of Conforming
Whether to conform or not depends on a number of
factors, for example, the effort an individual is willing to
make, the circumstances in which they are operating and
the individual’s recognition of their own skills. Where an
individual believes that they have no special advantage
and cannot develop one anytime soon, conforming can
be beneficial. The better the narrative to which the
individual conforms, the greater the benefits to them.
Herd-like behaviour
Herd-like behaviour arises when the group to which an
individual belongs to has a disproportionate impact on
their reasoning or their decisions. It arises when there is
an inadequate amount of individual thought to counteract
the influence of the group in arriving at their decisions;
i.e. when individuals are not fully engaging their Psyche
because they conform to a group norm.
Definition of the Efficient Market Hypothesis
Roughly stated, the EMH claims that asset prices fully
reflect all available information. The consequence being
that stocks always trade at their fair price so it is
impossible to consistently pick individual stocks that will
‘beat the market’.
