Forget economic theories about rational actors
When the chips are down, traders tend to lead with emotions rather than coolheaded analysis — especially during periods of euphoria or panic.
This has become one of the market’s few immutable realities, Marks said in his latest missive, which the Oaktree Capital Management co-founder published on Thursday.
Recognizing and remembering that market psychology is beholden to a handful of biases.
“Volatile psychology, skewed perception, overreaction, cognitive dissonance, rapid-fire contagion, irrationality, wishful thinking, forgetfulness, and the lack of dependable principles. That’s quite a laundry list of ills,” Marks said.
Moves across markets tend to be driven by herd psychology.
When investors are hopeful, which they often are, they can effortlessly deflect all news that would challenge the upbeat prevailing narrative.
That is, until a tipping point is reached. Once this happens, the pendulum often swings rather quickly from “hopeful” to “hopeless.”
Joseph Adinolfi MarketWatch 23 August 2024
There is no such thing as rational expectations.
There is wishful thinking, or panic. Now in a chart.
https://englundmacro.blogspot.com/2015/09/there-is-no-such-thing-as-rational.html
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