Trying to Predict the Market

Hersh Shefrin

in Beyond Greed and Fear

Published in print October 2002 | ISBN: 9780195161212
Published online November 2003 | e-ISBN: 9780199832996 | DOI:

Series: Financial Management Association Survey and Synthesis Series

 Trying to Predict the Market

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Wall Street strategists are susceptible to gambler's fallacy. In general, four important behavioral elements affect the market predictions of investors: overconfidence, betting on trends, anchoring and adjustment, and salience. Although gambler's fallacy generally afflicts Wall Street strategists, it typically does not afflict individual investors and technical analysts—they succumb to other errors. This point leads to a discussion about some of the key illusions that most people have about randomness, and why these illusions bias their predictions. Inflation adds an additional element of confusion.

Keywords: anchoring and adjustment; betting on trends; fundamental analysis; gambler's fallacy; illusions about randomness; overconfidence; salience; technical analysis; Wall Street strategists

Chapter.  5109 words.  Illustrated.

Subjects: Financial Markets

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