Abstract
Although studies examining the biological roots of human behavior have been conducted since the seminal work Kahneman and Tversky, crises and panics have not disappeared. The frequent occurrence of various types of crises has led some economists to the conviction that financial markets occasionally praise irrational judgments and that market crashes cannot be avoided a priori (Sornette 2009; Smith 2004). From a biological point of view, human behaviors are essentially the same during crises accompanied by stock market crashes and during bubble growth when share prices exceed historic highs. During those periods, most market participants see something new for themselves, and this inevitably induces a stress response in them with accompanying changes in their endocrine profiles and motivations. The result is quantitative and qualitative changes in behavior (Zhukov 2007). An underestimation of the role of novelty as a stressor is the primary shortcoming of current approaches for market research. When developing a mathematical market model, it is necessary to account for the biologically determined diphasisms of human behavior in everyday low-stress conditions and in response to stressors. This is the only type of approach that will enable forecasts of market dynamics and investor behaviors under normal conditions as well as during bubbles and panics.
Highlights
The reasons for financial market collapses have been examined for several decades; we remain unable to accurately predict such crises
Because the stress response of the endocrine system is in accordance with the nervous system’s reaction to exposure [37,38], and because hormone measurement techniques are routine, most researchers who have studied the influence of stress on stock gamblers have evaluated the correlation between endocrine system components and a specific human behavior involved in the stock exchange
When comparing hormone levels and human behaviors in financial markets, it should be recognized that decisions, especially financial ones, are mostly made under stressful conditions [3,6]
Summary
The reasons for financial market collapses have been examined for several decades; we remain unable to accurately predict such crises. The frequent occurrence of various types of crises has led some economists to the conviction that financial markets occasionally reward irrational judgments and that market crashes cannot be avoided a priori [1]. The source of this phenomenon is thought to be irrational human behavior when making decisions (e.g., risk seeking) [2]. It follows that irrational components in economic behavior almost automatically rule out the success of any economic forecasts. A comparison of the behaviors of stock gamblers during stock crises in different time periods demonstrated that a gambler’s behavior does not depend on the time of or reason for the occurrence of the crisis [3,4,5,6]
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