A psychological perspective of financial panic

Anat Bracha and Elke U. Weber

No 12-7, Public Policy Discussion Paper from Federal Reserve Bank of Boston

Abstract: In spite of large number of financial crises, often depicted as episodes of financial panic, the notion of panic in financial markets is not very well understood. Many have argued that in order to understand financial crises, and in particular panic events, we need to go beyond classic economic arguments. This paper is an effort in that direction, in which we attempt to give a psychological account of panic and of panic in financial markets in particular, by discussing uncertainty, the desire for predictability and control, the illusion of control, and confidence. We suggest how one might incorporate these psychological insights into existing economic models.

Keywords: Financial; crises (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cbe and nep-pke
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