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Don't we also operate under a "herd" mentality?The individual is so affected by external/unknown forces. Some behavior is driven from "reading" the signals which our peer investors give off. This is what our bubbles are made of.
Here's a secret -- stock market is usually UP on nice days! And if you look at which days the market began a decline -- USUALLY a rainy day.
Therefore Obama would be wise to give his fiscal pep talks on nice days!
What about the "animal spirits" of people treating value as the profit in circular lending, like in housing or tulip bulbs, etc. at the heart of panics?
Of course, George Akerlof, it's not capitalist overproduction that produces the boom-bust cycle—it's "Animal Spirits". Thanks for clarifying that.
I like economics and find it interesting but sometimes it looks like people follow the theory that leads to the results they want.
There are different opinions about the theories that apply to current situations and we can't know which is right until we try it. Then after the fact the analysis of the results is also inconclusive because of there are to many variables to consider. Everyone picks the variables that defend their opinion.
Bravo, Alvin! It'd be refreshing to hear any evidence of genuine familiarity with Smith among "pop" economists like Cramer, Rubin, Geithner, etc. (by contrast with Akerlof or Stiglitz or Krugman -- all three of whom a are clearly a great deal more open-minded and honest than those who have been getting the most press over the past ten years).
In "How We Decide" by Jonah Lehrer, the effect of our emotional brain, particularly in our dealings with credit, is discussed at length. The conclusion that Jonah comes to is that many problems that arise with a persons dealing with credit stem from listening more strongly to the emotional brain. It seems that in many cases credit card companies have found a weakness in our decision making abilities and have exploited them. Could you speak macro-economically about how this could be addressed by policy/decision makers?
What about the 'animal spirits' of the flight to safety for money, when people treat the source of value as being hoarding the pieces of paper and security of accounts, and that pulls money out of circulation and actually devalues the money being 'kept safe'?? There seem to be a number of those... mistaking the info for the reality problems, fyi
To the extent the health of the economy is a function of confidence rather than fundamental soundness, the economy as a whole is nothing more than a Ponzi scheme.
Behavioral economics is all the rage now, but instead of studying Keynes, why not go back to the original work on this topic: Adam Smith's"The Theory of Moral Sentiments"?
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