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The psychology of financial markets: Keynes, Minsky and emotional finance

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  • Sheila Dow

    (SCEME, University of Stirling)

Abstract

This paper is concerned with drawing on both psychology and economics in order to amplify the psychological content of Minskys account of the behaviour which leads up to financial turmoil, and market responses to it. In exploring recent developments in behavioural finance, the author finds that a crucial element is given inadequate attention: the motivation for action under uncertainty. Yet earlier traditions in economic thought (notably the Scottish Enlightenment thought) incorporated the role of psychological motivation under uncertainty. One can see this emerging again in Keyness analysis of financial behaviour, and again in Minskys financial instability hypothesis. The methodological features of their economic analysis are explored which allow this crucial psychological input to be present, focusing in particular on the role and meaning of rationality.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Sheila Dow, 2008. "The psychology of financial markets: Keynes, Minsky and emotional finance," SCEME Working Papers: Advances in Economic Methodology 022/2008, SCEME.
    • Handle: RePEc:sti:wpaper:022/2008
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    File URL: http://www.sceme.org.uk/wps/SCEME022_Dow_2008.pdf
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    Cited by:

    1. Pedersen, Michael, 2019. "Anomalies in macroeconomic prediction errors–evidence from Chilean private forecasters," International Journal of Forecasting, Elsevier, vol. 35(3), pages 1100-1107.

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    More about this item

    Keywords

    uncertainty; Keynes; Minsky; emotional finance;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology

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