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Why is behavioral economics an important concept to understand when discussing the formation of asset bubbles? 'Irrational exuberance' leads to regular, mass sell-offs, driving asset
Why is behavioral economics an important concept to understand when discussing the formation of asset bubbles? 'Irrational exuberance' leads to regular, mass sell-offs, driving asset prices down. During bubbles, forecasting errors lead to investors under-forecasting asset prices and therefore, not buying. Irrational exuberance' shown by investors can lead to inaccurate valuations of assets, leading to a 'snowball effect with consistent price increases. Higher asset prices lead to a framing bias where investors choose to buy more assets
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