FINANCIAL BEHAVIOR

In this analysis, we will explore widely recognized theories of psychology and decision-making to better understand the irrational behaviors often exhibited by participants in financial markets.

We will identify common errors that arise from behavioral biases, highlighting how these mistakes lead to significant deviations from rational decision-making. Furthermore, we will delve into how this irrationality can manifest at the aggregate level, contributing to the formation of financial bubbles that elevate asset prices beyond their intrinsic values.

The persistence of these bubbles will also be examined, alongside the various economic and psychological factors that ultimately trigger their collapse, leading to market crashes. By synthesizing these insights, we can gain a deeper understanding of the complex dynamics that govern financial behavior and market fluctuations.

UTILITLY OF MONEY

The Perception of Money and Happiness

RISK AVERSION

The Utility of a Gamble

EXPECTED UTILITY vs PROSPECT THEORY

Losing money hurts more than winning money feels good

LOSS AVERSION

Why losing money hurts more then winning money?

CORRELATION / CASUALITY

Luck can masquerade as skill

PROBABILITIES EVALUATION

Psychological biases can influence our perception

RELATIVE vs ABSOLUTE PROBABILITY

The media's probability...wrong

AVAILABILITY

Vivid memories mislead probability estimates

MENTAL ACCOUNTING AND BUNDLING EXPENDITURES

Bundling hides spending, reducing pain of paying.

Source https://en.wikipedia.org/wiki/File:Stages_of_a_bubble.png

Phases of a Bubble

By Jean-Paul Rodrigues

Bubble-Crash Cycles throughout History

Belief perseverance - https://en.wikipedia.org/wiki/Belief_perseverance

Gambler's fallacy - https://en.wikipedia.org/wiki/Gambler%27s_fallacy

Escalation -https://en.wikipedia.org/wiki/Escalation_of_commitment

Confirmation bias - https://en.wikipedia.org/wiki/Confirmation_bias

Availability heuristic - https://en.wikipedia.org/wiki/Availability_heuristic

Loss aversion - https://en.wikipedia.org/wiki/Loss_aversion

Non-Regressive Prediction - https://snoopy-pi.com/non-regressive-prediction

Risk Seeking over Losses - https://snoopy-pi.com/risk-seeking-over-losses

Tulipmania

South Sea Bubble

Railway Mania

1929 Crash

Dotcom Bubble

Look here

Blog P.I.

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