fear now seems to rule, with investors often exhibiting a Wall Street version of the fight-or-flight mechanism — selling first, and asking questions later...some analysts are starting to suggest the markets are showing signs of “capitulation” — what happens when even the bullish holdouts, the unflagging optimists, throw up their hands and join the stampede out of the market...To some, signs of capitulation can be read as an indicator that the bottom may be near.The opposite swing of the cycle is buying at the top of a bubble. I remember during my winter stays in Ft. Lauderdale in 2005 and 2006, every fourth person I chatted with seemed to be a realtor and dinner conversations were dominated by stories about fast profits on flipped condominiums.
Wednesday, October 15, 2008
Applied neuroeconomics - the fear of loss
Bajaj does an interesting writeup of well-known crowd psychological dynamics behind recent "irrational" drops in the stock market. Fear is a more powerful force than greed. Our aversive reaction to losing $1000 is greater than our pleasure at earning the same amount...