Mood (Irrational Exuberance)

Investor mood and irrational exuberance fall within the field of behavioral economics, which won the Nobel Prize for two of its pioneers, Daniel Kahneman and Robert Shiller. Shiller is the author of the book Irrational Exuberance, which gained fame for correctly predicting the bursting of the dot-com bubble in around 2000, which should not have occurred, according to the views of the mainstream of finance described in the article on the investment company Vanguard, whose investment philosophy attracted hundreds of billions of dollars. The philosophy of Vanguard is founded on the pillars of modern finance—the efficient markets hypothesis (EMH) and the capital assets pricing model.

Mainstream finance believes that financial behavior can be explained by a rational actor model, which depicts a man or woman as ...