Brain activity shows that some people who invest during financial bubbles are not reckless. They actually think a great deal before jumping in.
The finding is contrary to what some economists have suggested—that financial bubbles are driven by confusion or denial on the part of investors and traders.
“What we find is that the people who are most susceptible to bubbles are not just reckless traders getting caught up in a frenzy,” says Colin Camerer, a professor of behavioral economics at Caltech. “Instead, when there are unusual patterns in trading activity, these people are actually thinking a lot about what it means, and they’re deciding to jump in.”