Analysis Of The Crowd: A Study Of The Popular Mind

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One of the earlier study of cognitive psychology and understanding of these biases in particular with some relation to finance that demonstrate that theory can be traced back to Charles Mackay. In 1841 he published "Extraordinary Popular Delusions and the Madness of Crowds" where he presents a chronological timeline of the various panics and schemes throughout history, describing how the herd mentality of people could lead to events such as financial and economic bubbles. Gustave Le Bon also contributed to this with "The Crowd: A Study of the Popular Mind" (1895), in which he characterizes the effects of a crowd on decision making by "impulsiveness, irritability, incapacity to reason, and the absence of judgment of the critical spirit...". Regarded as pivotal works, they helped to understand of one the …show more content…

He concluded that overconfidence is a result of a collection of biases imprinted in human behavior, leading to irrational decision-making. Ward Edwards (1968) showed another significant cognitive bias in a study, where he looked at the role of conservatism bias in information processing. Edwards's experiments demonstrated that people have a tendency to under-value and under-react to new information compared to old, in particular if that information contradicts prior beliefs causing them to process it inaccurately. Slovic and Lichtenstein (1971) showed how different cognitive biases repeatedly cause people to disregard any rational Bayesian and regression approaches to the study of information processing in their judgment, which is the main drive behind the assumption of ration decision-making. Miller & Ross (1975), conducted a study that was one of the earliest to evaluate not only self-serving bias but also they looked at the attributions bias for successes and

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