Are threats to markets being overestimated because of human psychology?

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Are threats to markets being overestimated because of human psychology?

Heightened sensitivity to economic events post-Lehman Brothers' collapse is leading to increased volatility in markets, especially with regards to the shares of financial institutions, according to Gurnek Bains, chairman of multinational corporate psychology consultancy YSC.

There is an effect in psychology called 'the availability heuristic', which essentially describes how people's attitude to risk can be informed by key memorable instances. In short, rather than make risk assessments on the basis of rational probabilities, people can be strongly influenced by the extent to which memorable incidents come to mind. That is why people grossly overestimate the likelihood of dying in a plane crash or in a terrorist incident, as opposed to falling down a flight of stairs or choking on their morning toast. People working in the financial markets are no exce...

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