Are traders affected by chronic patologies?


Is It the Market Going Crazy? Or Is It Traders?

Investors looking for why the stock market is in turmoil might want to go back to 1987, when “Walk Like an Egyptian” topped the charts and Janet Yellen, now the Federal Reserve chairwoman but then an unknown, untenured economics professor at the University of California, Berkeley, published a paper on the role of irrational behavior in market movements. Titled “Rational Models of Irrational Behavior” and co-written with Yellen’s economist-husband George Akerlof, then a colleague at Berkeley, the paper appeared just five months before Black Monday, the largest stock market crash in history, in which the Dow lost nearly a quarter of its value on a single October day. Yellen’s paper espoused a controversial approach that she appears to have increasingly embraced over the years: that markets are not orderly, rational machines of predictable, efficient behavior based on clear information, but are suffused with panic, greed and other irrational forces that drive human psychology, emotion and behavior. ….[READ]

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