Psychological Points of Equilibrium in Asset Valuation During Market Bubbles

Olivier Mesly and David Tessier

Journal of Behavioral Finance, 2016, vol. 17, issue 1, 85-98

Abstract: This paper presents the concept of psychological point of equilibrium (PPE), which is a mental state achieved by average investors when trying to make decisions during market bubble's inflationary stages. The PPE results from an interplay between agents acting in a volatile market that is characterized by predatory behaviors. Prior to the 2008 subprime crisis, average investors are assumed to have displaced their logical PPEs in large part as a consequence of their attraction towards predatory mortgages and teaser rates. A better understanding of average investor's vulnerabilities may help governments to implement more efficient measures aimed at curving predatory behaviors.

Date: 2016
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DOI: 10.1080/15427560.2015.1098641

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