....then again...
Who said that "people acted based on common sense" ?
Remember "Delution Investment Theory" ? (Penny stock markets).
Read and enjoy... (The Economist requires free registration, this article alone, is worth the trouble)
economist.com
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IRRATIONALITY CHRISTMAS SPECIAL (DEC 1999)
Rethinking thinking
Economists are starting to abandon their assumption that humans behave rationally, and instead are finally coming to grips with the crazy, mixed up creatures we really are
“ARE economists human?”
is not a question that occurs to many practitioners of the dismal science, but it is one that springs to the minds of many non-economists exposed to conventional economic explanations.
Economists have typically described the thought processes of homo sapiens as more like that of Star Trek’s Mr Spock—strictly logical, centred on a clearly defined goal and free from the unsteady influences of emotion or irrationality—than the uncertain, error-prone groping with which most of us are familiar. Of course, some human behaviour does fit the rational pattern so beloved of economists. But remember, Mr Spock is a Vulcan, not a human.
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It is becoming increasingly fashionable for economists, especially the younger, more ambitious ones, to borrow insights from psychologists (and sometimes even biologists) to try to explain drug addiction, the working habits of New York taxi-drivers, current sky-high American share prices and other types of behaviour which seem to defy rationality.
Alan Greenspan, the chairman of the Federal Reserve, made a bow to this new trend when he wondered about the “irrational exuberance” of American stockmarkets way back in December 1996 (after an initial flutter of concern, investors ignored him).
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During the 1980s, macroeconomic policies based on rational expectations failed to live up to their promise (although this was probably because people rationally refused to believe government promises). And the stockmarket crash of October 1987 shattered the confidence of many economists in efficient markets. The crash seemed to have occurred without any new information or reason. Thus, the door of the ivory tower opened, at first only slightly, to theories that included irrational behaviour. Today there is a growing school of economists who are drawing on a vast range of behavioural traits identified by experimental psychologists which amount to a frontal assault on the whole idea that people, individually or as a group, mostly act rationally.
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Hu oh...
Message 14042281
I do not like Tazio best. I am not defending him. He is not the middle aged son I never had. In fact I don't read the really long posts of his because they tend to be irrational
EAT YOUR HEART OUT X, --[g]-- Irrational behavior does pay !! *g*
LOL "I feel vindicated"
HAHAHAHAHAHA....
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A quick tour of the key observations made by these psychologists would make even Mr Spock’s head spin. For example, people appear to be disproportionately influenced by the fear of feeling regret, and will often pass up even benefits within reach to avoid a small risk of feeling they have failed. They are also prone to cognitive dissonance: holding a belief plainly at odds with the evidence, usually because the belief has been held and cherished for a long time. Psychiatrists sometimes call this “denial”.
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Aha !! Religious behaviour explained ! heeeee heeeeee
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Another delightfully human habit is magical thinking: attributing to one’s own actions something that had nothing to do with them, and thus assuming that one has a greater influence over events than is actually the case. For instance, an investor who luckily buys a share that goes on to beat the market may become convinced that he is a skilful investor rather than a merely fortunate one. He may also fall prey to quasi-magical thinking—behaving as if he believes his thoughts can influence events, even though he knows that they can’t.
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Heeee heeee heeee...
__________________
Marcos.... Have you ever wondered why the "SELLING" decision is far harder then the "Buying decision"...
Particularly in penny stocks. (free shares ?)
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Finally, who can deny that people often become emotional, cutting off their noses to spite their faces. One of the psychologists’ favourite experiments is the “ultimatum game” in which one player, the proposer, is given a sum of money, say $10, and offers some portion of it to the other player, the responder. The responder can either accept the offer, in which case he gets the sum offered and the proposer gets the rest, or reject the offer in which case both players get nothing. In experiments, very low offers (less than 20% of the total sum) are often rejected, even though it is rational for the responder to accept any offer (even one cent!) which the proposer makes. And yet responders seem to reject offers out of sheer indignation at being made to accept such a small proportion of the whole sum, and they seem to get more satisfaction from taking revenge on the proposer than in maximising their own financial gain. Mr Spock would be appalled if a Vulcan made this mistake.
and lots more....
About Gary Becker (One of the economists mentioned in the article)
nobel.se |
