I don’t know whether you’ve heard of the Placebo Effect, but it seems to be the best explanation for a lot of things that are happening right now.
A placebo is defined in the dictionary as a ‘substance containing no medication and prescribed to reinforce a patient’s expectation to get well,’ – and medical researchers sometimes use an inert substance with no curative powers to compare and test real medicines.
Apparently, some who are given placebos also get cured or show improvement. Obviously, this happens because of what could be called a ‘mind-over-matter’ effect. People expect to be cured, so they get cured. I myself experience this. When I decide to see a doctor, I feel cured.
This phenomenon apparently extends to non-medical doctors as well. For example, Manmohan Singh. What has been happening all around us since about noon on May 16 appears to be a giant, nation-wide Placebo Effect.
It is visible not only in stock markets but also in the real economy. Examples: One friend whose business got into trouble last year has now made a car purchase he had postponed, while someone who got sacked last November has now decided not to take a stopgap job because, after election results, he feels certain he will get a better one.
As a financially conservative person, I would have called such actions foolish, but when I see the change in mood around me, I’m not so sure.
And then there’s also the so-called Nocebo Effect, which is the opposite of the Placebo Effect. If you believe that you have a disease, then you’ll start exhibiting its symptoms. Perhaps what we’re seeing is as much an effect of the disappearance of the Nocebo Effect of the communists. As the hedge fund manager Samir Arora said on TV after the election results, not having to see Prakash Karat on TV on May 16th is by itself worth at least 500 points of the Sensex.