Journal Article

The Psychology of Financial Crises

Author

  • Henning Klodt
Publication Date

Traditional economic theory has tried to explain speculative bubbles as the result of rational economic behavior – and has failed. This calls for the integration of sociopsychological patterns, which allow capturing irrational behavior in economic analyses. The paper suggests four fundamental psychological pitfalls derived from the theory of cognitive dissonance, which might be at the roots of the present financial crisis and which should better not be ignored by monetary policy makers.

Info

JEL Classification
D01

Key Words

  • behavioral economics
  • financial crisis
  • financial markets
  • Finanzmärkte
  • Verhaltensökonomie