While neurological studies have tried to identify components responsible for fear and greed, the impact on finance is less clear.
Sentiment: NEGATIVE
Greed is not a financial issue. It's a heart issue.
During periods of extreme fear or greed, you don't have the proper balance between those two to generate market efficiency and you get extremes in behavior.
The great thing about behavioural psychology and economics is that they help us to see that there are actually pretty good reasons why human beings swing from greed to fear, and why we're not really calculating machines or utility-maximisers.
Fear tends to manifest itself much more quickly than greed, so volatile markets tend to be on the downside. In up markets, volatility tends to gradually decline.
The reality is, risk is variable. Those in the financial world know it.
You know, when the cost of capital goes down, when credit becomes cheap, people start taking greater and greater risks.
We tend to focus on assets and forget about debts. Financial security requires facing up to the big picture: assets minus debts.
The danger is not so much in the economic structure of a society but in its intellectual structure.
One of the key elements of human behavior is, humans have a greater fear of loss than enjoyment of success. All the academic studies will show you that the fear of loss of capital is far greater than the enjoyment of gains.
Fear, greed and hope have destroyed more portfolio value than any recession or depression we have ever been through.