Investigating Financial Bubbles and Bursts: A Psychological Perspective

This paper investigates the role of psychological biases in financial bubbles and their bursts, challenging the traditional view of rational investor behavior proposed by the Efficient Market Hypothesis.By examining historical bubbles like the South Sea and Dot-Com bubbles, and analyzing biases such as overconfidence, herding, and confirmation bias, the paper aims to reveal how these cognitive errors influence investor actions during crises.Additionally, this paper compares past bubbles with current cryptocurrency market trends.Ultimately, the aim of this paper is to enhance our understanding of investor psychology and its impact on financial stability in the economy.