Tuesday, July 02, 2013

Psychology Influences Markets, Research Confirms

When it comes to economics versus psychology, score one for psychology. Economists argue that markets usually reflect rational behavior—that is, the dominant players in a market, such as the hedge-fund managers who make billions of dollars' worth of trades, almost always make well-informed and objective decisions. Psychologists, on the other hand, say that markets are not immune from human irrationality, whether that irrationality is due to optimism, fear, greed, or other forces.
Now, a new analysis published in the XX issue of the Proceedings of the National Academy of Sciences (PNAS) supports the latter case, showing that markets are indeed susceptible to .

6 comments:

Anonymous said...

Really interesting Adam, thanks​!​

I think that you would be really interested in some recent research that I have come across about crowds and prediction markets, and citizen science.​ ​

It’s called “The Theory of Crowd Capital” and you can download it here if you’re interested: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2193115

Really powerful stuff!

Psychology Glossary said...

Economists argue that markets usually reflect rational behavior -- that is, the dominant players in a market, such as the hedge-fund managers who make billions of dollars' worth of trades, almost always make well-informed and objective decisions. Psychologists, on the other hand, say that markets are not immune from human irrationality, whether that irrationality is due to optimism, fear, greed, or other forces.

Anonymous said...

Adam, this is a gross defamation of an entire branch of science. "Economists" argue that markets "usually" reflect rational behaviour. The opposite is true: already almost 100 years ago a famous economist, Ludwig von Mises, recognised that the individual economic agent may have intrinsic motivations and deliberations which appear irrational to another agent. He built an entire branch of exconomics on this basis. BTW: "Players" includes governments - very sizeable players in todays markets - which have Special tendencies for "irrationality" and cause singlehandedly more havoc than any other market player.

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