The Science of Economic Bubbles and Busts
The worst economic crisis since the Great Depression has prompted a reassessment of how financial markets work and how people make decisions about money Full Story »
Posted by Derek Hawkins
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U.S. Economy, Finance, Science, Money
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Posted by Derek Hawkins - Jun 25, 2009 - 1:23 AM PDT
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Derek Hawkins (review), Peter Henry (review)
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Article
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Derek Hawkins - Jun 25, 2009 - 1:23 AM PDT
Interesting story about application of human psychology (irrationality) to economics, in particular, financial bubbles. Herd behavior amplifies the psychology-driven decisions of individual investors to affect the entire system. However, the article ignores simple explanations for market chaos, such as the very clear connection of socializing the risks for the players considered "too big to fail." It's clear to me, a non-economist, that I'm being rational when I have others pay for my losses while I reap the gains. SciAm is being disingenuous to disregard this aspect of our financial system. Classical economics fails when the game is fixed.
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