Take a deep breath, close your eyes and relax: visitors to this year’s Frieze Art Fair are being encouraged to face their deepest fears about the financial crisis – and then hypnotised into overcoming them.

A four-part, 12-minute video by the Danish art collective Superflex will be shown at the annual contemporary showcase, which opens to the public on Thursday in London’s Regent’s Park, asking viewers to imagine a series of financial calamities.

Then at the end, with a click of the hypnotist’s fingers, they are urged to “feel happiness and joy” after confronting their worries about the financial meltdown. The video will also be shown on successive nights on Channel 4 from Monday.

“Our idea is to approach the financial crisis as a psychosis that can be treated in a therapeutic manner using hypnosis,” explains one of the group in the Frieze yearbook.

The instant cure for credit crunch depression cannot disguise the fact that the once-glitzy contemporary art world is having to tighten its belt.

Out of 151 galleries that took part in Frieze last year, 28 have not reapplied to participate this year. The organisers have opened a new section of the fair devoted to new galleries, to bring the total to 165, but they will pay a lower rate.

At Sprüth Magers gallery, work by John Baldessari, whose major retrospective opens on Tuesday at Tate Modern, is on offer, including the artist’s humorous “Beethoven’s Trumpet (With Ear) Opus 133”.

But the mood elsewhere is sombre. The rival Zoo fair is down by 37 exhibitors from last year.

Auctions of contemporary art in London are also being scaled down. The total expected from this week’s sales is around £33m, a fraction of last year’s £103m.

Sotheby’s evening sale, in recent years a scene of frenetic bidding, will no longer take place at all, while its day sale, which will include Arab and Iranian art, is estimated at just £10m.

Christie’s includes a Peter Doig painting estimated at £1.5m-£2.5m, the week’s top lot, but it has combined its contemporary and Italian sales, which were kept separate in previous years.

The auction houses say there is still a demand for high quality work, but supply has slowed dramatically as potential sellers await more persuasive signs of economic recovery before consigning to market.

As a result of the subdued atmosphere, attention will focus on younger artists as buyers look for bargains.

Some of their new works will be displayed in “The Embassy”, an installation produced by the 20 Hoxton Square gallery, which will take over the former embassy of Sierra Leone in Portland Place and will present a “pastiche of the manner in which embassies promote their country’s culture abroad”.

One of the project’s most controversial pieces will consist of three sets of human lungs “in varying degrees of shock, agitation and panic” juxtaposed against three original ballot boxes from the closely contested US election of 2000.

While younger artists are doing their best to work in the shock-tactic tradition of their predecessors, Damien Hirst, the most notorious member of the Young British Artist generation, will next week show a different side to his work.

The meteoric rise of the contemporary art market was symbolised by the Sotheby’s sale last year of new works by Mr Hirst for £111m, on the very day that Lehman Brothers collapsed.

But the artist is changing direction with his new exhibition at the Wallace Collection, which opens on Wednesday. Mr Hirst has turned his back on his spin and spot paintings and medicine cabinet sculptures, and will present a series of new oil paintings.

“There’s only ever been one idea, and it’s the same all the way through the history of art – painting is dead, long live painting,” he told London’s Time Out magazine this week. “At least paintings are easier to shift – even in a recession people like paintings.”