The Iron Law of Financial Markets: Self-fulfilling Prophecies and Speculative Booms and Busts

  • Ognjen Radonjić Department of Sociology Faculty of Philosophy University of Belgrade
Keywords:
speculation, speculative bubble, self-fulfilling prophecies, insiders, outsiders, mass psychology

Abstract

This paper discusses the factors which, in the absence of strong financial regulation, sustain the Iron Law of the Financial Markets asserting that speculative booms and busts occur more or less regularly from 17 century to the present. The first factor is that financial markets are self-fulfilling system. The second is that human nature does not change and is based on egoism, materialism, loss aversion, exaggerated hopes and fears, emulation, propensity to gamble, herd behavior and so on. Lastly, there is the extreme brevity of the financial memory. In order to enable economic authorities and/or individuals to detect timely that the unsustainable boom is under the way, we have identified the common features of historically recorded speculative episodes. Stages through which the system passes on its way from unsustainable rise to inevitable fall are: displacement, boom, overtrading, financial distress and discredit or revulsion.

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Izvori / Sources

Federal Reserve Bank of St. Louis, Dostupno na: http://research.stlouisfed.org-/fred2/graph/?g=j14
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Published
2013-12-26
How to Cite
Radonjić, Ognjen. 2013. “The Iron Law of Financial Markets: Self-Fulfilling Prophecies and Speculative Booms and Busts”. Issues in Ethnology and Anthropology 8 (4). https://doi.org/https://doi.org/10.21301/eap.v8i4.11.
Section
Other Humanities and Social Sciences