Whether you’re a proponent of technical analysis of the capital markets, a subscriber to behavioral finance, or have any background in psychology, the reluctance of investors to get back into the markets is no surprise after a crisis like 2008. Even a lesser crisis has people waiting until the ‘easy money’ has already been made. Behavioral scientists say that investors are more greatly affected by the pain of a market loss than they are by the pleasure of locking in a profit. We want proof that things are better so that our fears of experiencing loss are lessened.
Meir Statman, a behavioral expert at Santa Clara University, says people are living in the past—the past of the 2008
crisis. People develop habits relative to a particular experience and they look for events that confirm that view of the world is still valid. Until they see something that challenges that view, they will take any news and make it fit within their operative outlook.
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