Behavioral Finance

Shiller (2003). From Efficient Markets Theory to Behavioral Finance. Journal of Economic Perspectives-Volume 17, Number 1-Winter 2003-Pages 83-104

People respond to stories rather than numbers or probabilities, according to Shiller.

See also Taleb's Fooled by Randomness. The point is that people will construct stories to explain things that are in fact entirely random.

Overconfidence is also a factor.

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