When you’re making an investment decision (or just thinking about money) do you suffer from any of the following symptoms: increased heart rate? A feeling of choice paralysis? Constantly second-guessing yourself?
These are all signs that you’re not a cold-blooded and completely rational machine when investing. But that’s okay – you’re human. No one is always 100% unemotional – even if for years economists assumed people acted that way.
For most of the 20th century, mainstream economists taught that markets are what they called “efficient” – that prices of stocks and bonds reflect all the information that’s available. And that market movements were down to human beings processing all this information rationally and therefore making rational decisions.
In this perfect model, it’s the
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