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Behavioral-Biased Explanations For Global Financial Crisis

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There are also some behavioral-biased explanations for global financial crisis. First, Shefrin and Statman (2000) state that there are two emotions that drive investors when making investment decisions: greed and fear. Investors tend to keep a relative safe position in financial market because of the fear. Greed, in turn, makes investors take high risks. These two emotions work together when people make decision. Particularly, the greed of investors and bankers caused global financial crisis. Before the burst of housing bubble, the long-term prosperity decreased the fear of investors to take risk. Therefore, greed takes over and encourages investors to make riskier investments. At the same time, investors require increasingly higher returns

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