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Bubbles, crashes and the human condition

RedTigerRedTiger Posts: 5,608 ✭
in Precious Metals
http://www.theatlantic.com/doc/200812/financial-bubbles
link

Readers know I am a big fan of theory, and also a big proponent of psychology and markets. The Atlantic article delves into both and why irrational behavior occurs, over and over again, even with the same participants that should know better in a game where everyone has exactly the same precise information.

Greed and fear drive markets the world over. No matter what is being traded, markets are more alike than different. Add in a less than perfect informational exchange, mix in some smart money, and some dumb money and the theory would do well to simulate a real market.


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Comments

  • ProofCollectionProofCollection Posts: 6,148 ✭✭✭✭✭
    Thank you. Neat article.
  • COINB0YCOINB0Y Posts: 4,505
    Me 2, I love this kinda stuff!
  • 57loaded57loaded Posts: 4,967 ✭✭✭
    "In fact, the people who make the most money in these experiments aren’t the ones who stick to fundamentals. They’re the speculators who buy a lot at the beginning and sell midway through, taking advantage of “momentum traders” who jump in when the market is going up, don’t sell until it’s going down, and wind up with the least money at the end..."

    quote above from RedTiger's article link

    reminds me of the 2006 ASE anniversary sets

    and when the 08/07 ASE's were discovered....
  • secondrepublicsecondrepublic Posts: 2,619 ✭✭✭
    excellent article
    "Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
  • BearBear Posts: 18,953 ✭✭✭
    The only bubbles that people should be allowed

    to participate in are.......BLOWING SOAP BUBBLES.
    There once was a place called
    Camelotimage
  • BaleyBaley Posts: 22,660 ✭✭✭✭✭
    Very interesting, and worth another look

    Liberty: Parent of Science & Industry

  • bluelobsterbluelobster Posts: 1,220 ✭✭✭
    No question in my mind, that many markets trade similarly, some just have a lot more beta and some markets are more apt to trade in a range.
    There are many aspects humans don't control, but human psychology is always the the final arbiter of price. Overtime, I have learned it's a lot easier to make better returns fading dumb money, than following it, it's just that the toughest part is figuring out who's the dumbest, you or the other side of the trade ;~
  • derrybderryb Posts: 36,824 ✭✭✭✭✭
    ". . . the best way to deal with a bubble is to not let it happen in the first place. The second best way is to let it pop and allow the market to clean up the mess. The absolute wrong way to manage a bubble is to intervene from the top to keep it going. Look where that has gotten Japan and the US." - John Rubino

    "Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey

  • derrybderryb Posts: 36,824 ✭✭✭✭✭


    For the equity holders worried about Greek Monday

    "Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey

  • BaleyBaley Posts: 22,660 ✭✭✭✭✭


    << <i>For the equity holders worried about Greek Monday >>



    what a great video! look how young they are, and how small the audience! That film clip is older than I am.

    No nervous breakdown, today at least.

    Liberty: Parent of Science & Industry

  • BaleyBaley Posts: 22,660 ✭✭✭✭✭
    You know, it occurs to me, with the words "bubble" and "crash" on everyone's mind and lips every day, how can there ever be another bubble? Read the OP article again.. people learn to anticipate and "get out ahead", and this moderates the bubble itself, diffusing most of the energy before too much overreaction and damage is done. Look at the orderly collapse of metals prices the past few years.. easy down we go..

    Liberty: Parent of Science & Industry

  • derrybderryb Posts: 36,824 ✭✭✭✭✭
    Herd mentality will always allow bubbles to form and to pop.

    "Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey

  • cohodkcohodk Posts: 19,129 ✭✭✭✭✭


    << <i>Herd mentality will always allow bubbles to form and to pop. >>




    I wish we had a bubble every other year....great opportunity to make some money. image

    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • bidaskbidask Posts: 14,017 ✭✭✭✭✭
    In the current market environment I think there are plenty of bulls and bears.....

    Which suggests to me we are not in a stock bubble.


    I manage money. I earn money. I save money .
    I give away money. I collect money.
    I don’t love money . I do love the Lord God.




  • DrBusterDrBuster Posts: 5,379 ✭✭✭✭✭


    << <i>

    << <i>Herd mentality will always allow bubbles to form and to pop. >>




    I wish we had a bubble every other year....great opportunity to make some money. image >>



    Agreed. Blood in the streets they say.
  • TwoSides2aCoinTwoSides2aCoin Posts: 44,293 ✭✭✭✭✭
    Let's revisit this in 7 more years.
  • derrybderryb Posts: 36,824 ✭✭✭✭✭


    << <i>Let's revisit this in 7 more years. >>


    Better make it two.

    "Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey

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