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What is Psychology of Financial Crises Explained about?

1) The document presents a psychological theory of how investors neglect risks and contribute to financial crises. 2) According to this theory, investors use "representativeness" from psychology to estimate probabilities. When outcomes resemble recent outcomes, investors overweight those probabilities and neglect alternatives. 3) After a string of good news, investors see continued good times as most representative and underestimate crisis risks. It takes sustained bad news to shift perceptions and trigg

Author

Jap Sahib Singh

Language

EN