The Economical-Emotional Duality
Similarly to the wave-particle duality, two families of forces are driving markets prices dynamics and oscillations : economical information on one side and emotional signals on the other side. To quote Robert Shiller [1]: "The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble." This is for Shiller and the behavioral finance analysts a consequence of an "informational cascade": a situation where people observe the actions of others and then make the same choice that the others have made, independently of their own private information signals. Investors feel reassu...