Psychological Points of Equilibrium in Asset Valuation During Market Bubbles. Issue 1 (2nd January 2016)

• Record Type: Journal Article
• Authors: Mesly, Olivier; Tessier, David
• Is Part Of: Journal of behavioral finance. Volume 17:Issue 1(2016)
• Page Start: 85
• Page End: 98
• Publication Date: 2016-01-02
• Subjects: Perceived predation -- Consolidated model of financial predation (CMFP) -- Financial predators -- Market bubbles -- Psychological point of equilibrium (PPE); Capital market -- Psychological aspects -- Periodicals; Finance -- Psychological aspects -- Periodicals; 332.019
• DOI: 10.1080/15427560.2015.1098641
• Languages: English
• ISSNs: 1542-7560

Abstract

Abstract: This paper presents the concept of psychological point of equilibrium (PPE), which is a mental state achieved by average investors when trying to make decisions during market bubble's inflationary stages. The PPE results from an interplay between agents acting in a volatile market that is characterized by predatory behaviors. Prior to the 2008 subprime crisis, average investors are assumed to have displaced their logical PPEs in large part as a consequence of their attraction towards predatory mortgages and teaser rates. A better understanding of average investor's vulnerabilities may help governments to implement more efficient measures aimed at curving predatory behaviors.