![]() Credit markets allow people to lend money for investments that will pay off in the future. Furthermore, in destabilized stock markets, experts are less likely to lose money than are lay people, who lack skill in constructing stock portfolios that effectively diversify risk. ![]() In order to understand stock market booms and busts, it is also necessary to take into account the tendency among actors to imitate each other. But evidence shows such biases are in fact pervasive. If no cognitive biases (strengthened by affective influences) existed or only some actors were susceptible to such biases, individual irrationality in stock markets would possibly be eliminated. Psychological explanations of excessive trading include cognitive biases such as overconfidence and overoptimism, risk aversion in the face of sure gains and risk taking and loss aversion in the face of possible losses, and influences of nominal representation (the money illusion) of stock prices. But in stock markets, stock prices, due to excessive trading, are more volatile than they would be if they reflected stocks ' true value. In product markets with full competition, prices more closely represent the true value of the products uncertainty in such contexts is thus minimized and the conditions are relatively conducive for making good judgments. Financial markets such as those for stocks and credit arguably are among those domains in which actors' capacity to make rational judgments and decisions is frequently overtaxed. It is therefore essential that scientific knowledge of people's cognitive and other limitations be brought to bear on the issue of how to improve decision making in these domains. But sometimes such transactions are so complex that they exceed the ability of individuals or groups to manage effectively. Individuals generally use their cognitive and other resources in sensible ways, and collectively they have developed procedures that effectively regulate economic and other social transactions. It also highlights important areas where more psychological research is needed to advance this understanding. Is there evidence for such a role, and what is the evidence? This monograph reviews, evaluates, and discusses research-primarily psychological research-that can potentially increase our understanding of the psychological antecedents and consequences of financial crises. As the market actors appear irrational, it is also understandable that people-lay people and experts alike-believe that psychological factors play a decisive role. # Try not to "spam" their thread if a few other reports with the same error description were posted in the last hours.It is understandable that people ask how the current financial crisis could happen. "failed": "ERROR: Parsing response failed, empty response! " "encodedData": "UmFyaXR5OiBSYXJlDQpHb2xlbSBLbnVja2xlDQpJcm9uIFJpbmcNCi0tLS0tLS0tDQpSZXF1aXJlbWVudHM6DQpMZXZlbDogNTcNCi0tLS0tLS0tDQpJdGVtIExldmVsOiA3Mg0KLS0tLS0tLS0NCkFkZHMgOSB0byAxNiBDb2xkIERhbWFnZSB0byBTcGVsbHMgYW5kIEF0dGFja3MNCi0tLS0tLS0tDQorMjQgdG8gbWF4aW11bSBNYW5hDQozNSUgaW5jcmVhc2VkIE1hbmEgUmVnZW5lcmF0aW9uIFJhdGUNCisxNSUgdG8gYWxsIEVsZW1lbnRhbCBSZXNpc3RhbmNlcw0KKzQ0JSB0byBMaWdodG5pbmcgUmVzaXN0YW5jZQ0KLS0tLS0tLS0NCkNvcnJ1cHRlZA0K",
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