Behavioral finance FAQ / Glossary (Panic)

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This is a separate page of the P-Q section of the Glossary

 

Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

Panic

00/12i + see bubble, crash,
mass behavior, hysteria,
capitulation

In case of panic, the feet take hold of the brain.

Definition:

A panic attack is a sudden and extreme fear of a real or perceived danger,
which blocks the rational analysis
of a situation.

Unless instinct (or experience / nerves / ability at improvisation) dictate an
adapted behavior, it can make either somebody (individual panic) or
a group (collective panic) react in hurried, excessive and

inappropriate ways.

It either freezes / paralyses actions (see paralysis),

or makes run away from the (perceived) danger,

Or it leads to extreme actions.

Btw, in case of panic, it could be helpful, so as to cool off and leave our
brain recover its lead over our reflexes, to use a mental anti-stress tool.

Market panics

Rushing to the market exit ...or entrance.

Collective panics occur from time to time in asset markets, and specifically
stock markets (*), when a huge wave of people try to buy or sell suddenly (**)

Crashes happen when the whole investor crowd runs
for the exit,
clogs it and causes illiquidity (= lack of
counterparties)
.


A crash differs from a mere bear market (although they sometimes
signal the start - or the end - of such a downtrend, see capitulation), as
in a crash, people run for their life and the price fall is more sudden
and dramatic
.

A full debacle when the river thaws !

Some bubbles could also be labeled "buying panics", in which
   everybody tries to enter the store and grab what is seen as life-saving
   goodies.
  

Here also it is more intense than a simple bull market (although it can be its
last phase).

This occurs when investors:

* get taken over by blind adoration (craze) for the toys, oops the assets,
   on the shelves,

* or flee from monetary assets (fear of monetary default,

or fear of inflation), a rush that economists call a "flight from liquidity"

* or sometimes flee from other assets considered dangerous or unattractive.

Illiquidity can strike also some specific "cornered", or just fashionable,
individual assets / stocks, when "too much money chase too few assets".

(*) Collective panics can take place in other asset markets, and also in
     
goods and services markets (fear of scarcity...).

It can also strike other financial institutions.

This is the case of bank runs (long queues to withdraw money
from  a bank considered weak and dangerous ...which accelerates its
demise).

(**) Well, except when all the brokers' communication lines are saturated

or when nobody offers a buying counterpart.

(*) To find those messages: reach that BF group and, once there,
      1) click "messages", 2) enter your query in "search archives".

Members of the BF Group, please
 vote on the glossary quality at
BF polls

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This page last update: 12/09/15

 
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