[Opinion] Panic

The word “panic” means intense anxiety and fear and is derived from the name of the Greek god Pan. Having the horns and torso of a goat, the amorous god was believed to have the ability to arouse extreme fear. So when livestock rushed about in a frenzy, ancient Greeks thought Pan played a trick on them. It’s quite imaginative to link fear to herds and flocks, since modern science has corroborated that fear is highly contagious.

Panic is unpredictable in nature, but people are regularly stricken by panic on one occasion. That occasion is Haji, the annual pilgrimage to Mecca that every able-bodied Muslim must do once in their lifetime. Since 1990, when 1,400 Muslims were crushed to death, the pilgrimage has claimed an average of 250 lives per year. Accidents often occur when people throw pebbles at three large “evil” pillars. Those first in line start throwing rocks and the rest take turns doing the same. The ritual, however, instantly turns to chaos and people are gripped by panic. To prevent this disaster, the Saudi Arabian government even invited panic experts from Germany.

In a bearish stock market, investors easily become panic-stricken to cause a massive sell-off. This is because they are more sensitive to losses than profits. Daniel Kahneman, the co-recipient of the 2002 Nobel Prize in economics, proved this through his “prospect theory.” According to this theory, people don’t bet when the gains are the same as the bet because they feel the absolute amount of loss is double to 2.5 times larger than the profit. This psychology is called “loss aversion.” Magnetic resonance imaging also supports this theory, as the brain grows more active when suffering losses than earning profits.

The U.S.-born financial crisis has thrown the entire world into a panic, hitting the Korean financial market especially hard. Fluctuations in the Korean foreign exchange and stock markets are more severe than those in neighboring countries and even small economies. Though the government’s ill-conceived responses deserve criticism, the market’s overreaction is also to blame. The country has already suffered from a groundless mad cow scare. If psychological factors are largely responsible for the domestic financial turmoil, the solution is to soothe unreasonable jitters and gain trust in the government.

Editorial Writer Chung Sung-hee (shchung@donga.com)