What is it about?
From a biological point of view, human behavior essentially is the same during crises accompanied by stock market crashes and during bubble growth when share prices exceed historic highs. During these periods, most market participants see something new for themselves, and this inevitably induces a stress reaction in them. As a result, their endocrine profiles and motivations change, leading to quantitative and qualitative differences in behavior.
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Why is it important?
To our mind, an underestimation of the role of novelty as a stressor is the primary shortcoming of current approaches for market research. When developing a mathematical market model, it is necessary to account for the biologically determined diphasisms of human behavior in everyday low-stress conditions and in response to stressors. This is the only type of approach that will enable forecasts of market dynamics and investor behaviors under normal conditions as well as during bubbles and panics.
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This page is a summary of: Novelty, Stress, and Biological Roots in Human Market Behavior, Behavioral Sciences, February 2014, MDPI AG,
DOI: 10.3390/bs4010053.
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