Behavioral finance complements traditional models from "summary" of Why Stock Markets Crash by Didier Sornette
In the quest to understand the complexities of financial markets, traditional models have long been the go-to framework. These models are built on the assumption of rational behavior by market participants, with a focus on efficient market theory and the idea that prices reflect all available information. However, the reality often deviates from these assumptions, as evidenced by the occurrence of bubbles and crashes in financial markets. Behavioral finance steps in to provide a more nuanced understanding of market dynamics by incorporating insights from psychology and sociology. By integrating insights from behavioral finance into traditional models, we gain a more comprehensive understanding of market behavior. Behavioral finance recognizes that human beings are not always rational decision-maker...
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