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Behavioral-Biased Explanations For Global Financial Crisis

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Recommended: Financial crisis of 2007/8

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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Overall, it was the combination of the desire for money mixed with ignorance towards making quality financial decisions that led to the financial crisis. 2. In the past, to get a mortgage you had to go through a series of steps; list them. Show up at the bank with tax records, pay stubs (to verify your income) and proof that you have enough savings to make a 20% down payment

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Even though many factors contributed to cause the Great depression, many argue that the biggest contributor was the stock market crash in 1929. During the years, previous to the recession, real state became very popular market to invest in. People were borrowing a great deal of money from banks to invest on purchasing lands, fixing roads, building houses, and buying houses. Even though people did not have enough money to repay their loans, they continued to borrow more, because of low tax returns. People believed that if they waited longer to invest, prices and interest rates will increase.

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Leuchtenberg sad, “There was no single cause of the crash and ensuing depression,” [Doc2]. Many things as stated earlier contributed to the crash, such as overexpansion of credit, goods, industries and rising rates of unemployment. Many Americans saw the Stock Market as an easy way to create wealth by buying stocks cheap, usually at a margin, and selling for a higher price, hopeful to profit. Buying on margin was the act of paying some money on a stock, but loaning the rest from a bank who expected would be paid back when profit was made. Stocks became more expensive to the point where nobody wanted to buy them because of their extreme price.

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The Stock market Crash was one of the causes of the Great Depression. One cause of the Stock Market Crash was the stock exchange. This led thousands of Americans to invest in stocks and lose money. Many Americans borrowed money from the bank to buy stocks. Most of the time, people who lost money were unable to pay the banks back their debt; which caused banks to fail.

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This continuous rising of the stock market was in a deep increase and the stock market made a lot of investors to dump their shares. Shares were sold to people, and a lot of people borrowed money from banks to buy those shares with the hope of economy getting better soon. But as time went on the stock market fall became so severe that those who borrowed money to buy shares were faced with a lot of danger. And they were finally wiped out because of how worthless their shares became in the market. The dumping of these shares by the investors put bankers in a high risk of losing money.

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Consequently, this method of purchasing goods became a huge problem because some buyers were unable to repay the lender, putting them in debt and hurting businesses. Money was not being used responsibly during this time period leading to the Stock Market Crash in 1929. There were so many events and foolish actions that people consider as causes of the worst economic downturn. Speculation,

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and why did it happen? One of the biggest causes was the market crash in 1929. This was believed to begin the great depression that lasted over a decade. The market crash had caused over nine thousand banks to shut down. Millions of people were left unemployed because of banks shutting down.

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The stock market crash was one of the major causes of the Great Depression. During the Great Depression, the American people were struggling. Franklin Delano Roosevelt, the President at the time, had a plan to help the people. He called his plan the New Deal. Ultimately, the New Deal was successful

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The companies kept pushing higher prices than what their products were really worth. This lead to the stock market crash. This meant workers were fired, wages cut, and business went out of business. After the stock market crashed, Americans lost trust in their banks to hold their

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The initial factor was the First World War, which upset international balances of power and caused a dramatic shock to the global financial system.

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Great depression A lot of the investor got wiped out, because they invested their money. This related to the stock market. The American banks invested their money to the Europeans and the European never pay them back so the people that deposit their money to the bank got played, so the

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Behavioral finance is combined social and cognitive psychological theory with a financial theory to explain the movements of the stock markets such as rises and falls on the securities. The article “7 Behavioral Biases That May hurt your business”, discusses the seven biases that can affect investing performances. The articles also explain that these behaviors can cause a negative impact on an individual financial position. Also, provides a way to overcome these behavioral biases. Also, the article suggests it’s best for an investor to discuss with their advisors about market expectations and how to manage their emotions to make the right decisions for their financial future.

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Many people said that one cause was that the stock prices were too high so the crash was inevitable. The stock market had a hard time stabilizing when such a massive amount of money was borrowed from it. One way to display this would be to look back at old data. “Compare the September 1929 prices with those in November 1929 or, more impressively, with prices in 1932. In 1932 prices were 32 percent of the year-end 1929 prices.

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The first reason is financial collapse. In 2008 financial crisis is affecting millions of Americans and is one of the most topics in the Presidential campaigns. Financial crisis is the lowest interest rates created an incentive for banks, hedge funds and other investors to hunt for riskier assets that offered higher returns. They also made it profitable for such outfits to borrow and use the extra cash to amplify their investments, on the assumption that the returns would exceed the cost of rent to owned.

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Herd mentality “is the mode of thinking that happens when the desire for harmony in a decision-making group overrides a realistic appraisal of alternatives; group members try to `minimize conflict and reach a consensus decision without critical evaluation of alternative ideas or viewpoints.” Throughout history, a lot of financial crisis has happened. In fact, the world’s history is full of financial crisis (see figure 1). It is true

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