Bubbles, Human Judgment, and Expert Opinion
17 Pages Posted: 16 Jul 2001
Date Written: May 2001
Research in psychology and behavioral finance is surveyed for evidence to what extent experts such as professional investment managers or endowment trustees may behave in such a way as to help perpetuate speculative bubbles in financial markets. This paper discusses scholarly psychological literature on the representativeness heuristic, overconfidence, attentional anomalies, self-esteem, conformity pressures, salience and justification for insights into weaknesses in expert opinion. The role of the prudent person standard and the news media in influencing experts is considered. The relevance of the literature on testing of the efficient markets theory is discussed.
Keywords: Institutional Investors, Investment Professionals, Organizations, Committees, Stock Market, Speculative Markets, Behavioral Finance, Feedback, Groupthink, Representativeness, Heuristic, Conservatism, Subjective Probability, Prudent Person Standard, Erisa, News Media, Attention, Efficient Markets, Conformity Pressures, True Uncertainty
JEL Classification: G10
Suggested Citation: Suggested Citation