In the Mind of the Market: Theory of Mind Biases Value Computation during Financial Bubbles

@inproceedings{Martino2013InTM,
  title={In the Mind of the Market: Theory of Mind Biases Value Computation during Financial Bubbles},
  author={Benedetto De Martino and John P. O’Doherty and Debajyoti Ray and Peter Bossaerts and Colin F. Camerer},
  booktitle={Neuron},
  year={2013}
}
The ability to infer intentions of other agents, called theory of mind (ToM), confers strong advantages for individuals in social situations. Here, we show that ToM can also be maladaptive when people interact with complex modern institutions like financial markets. We tested participants who were investing in an experimental bubble market, a situation in which the price of an asset is much higher than its underlying fundamental value. We describe a mechanism by which social signals computed in… CONTINUE READING
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The Chinese warrants bubble

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