Accident was regarded as the most probable, whereas statistics say that heart disease is much more likely.
Regret Theory.
Everyone seeks to avoid humiliation in their lives. The "Regret Theory" suggests that this is also true for people trading at exchange markets. " investors [may] avoid selling stocks that have gone down in order to avoid the pain and regret of having made a bad investment." Similarly, they tend to buy shares that are bought by many other people. This ensures that they are not the only ones who lose if one particular share experiences a downward movement.
Anchoring and Overreaction.
This occurs when people give too much weight to recent events. Current prices are seen as more or less correct, but the long-term historical development is ignored. The result is an increase in volatility, as reactions are exaggerated. For this reason, financial markets and actually the whole economy cycles of lows and highs. The chart below taken from www.lowrisk.com provides a comparison between the behaviour of the Dow Jones Industrial Average in 1929 and NASDAQ in 2000. The numbers on the abscissa indicates the percentage of one trading days" the average stock value of the market high. Ordinate values represent trading days.
There are obvious strong correlations between changes in both lines. Market abnomalias have ever occurred since the 17th century when the Dutch tulip market collapsed. Every person who has a little knowledge of finances should know about them. Nevertheless, a stock market bubble could develop during the 1990's, because they were so excited about the new internet technology. "Some believed that this new technology would bring humanity together in a grand community transcending regional boundaries." This sentence describes the utopic thoughts of people in the early Twenties regarding radio. It might as well characterise the internet guru's outlooks until 2000. Even professional analysts went with the crowd and set ratings for dot.