A Crisis of Beliefs: Investor Psychology and Financial Fragility (original) (raw)

This paper addresses the limitations of traditional rational choice theory in financial economics and highlights the richness and complexity of behavioral finance. The authors discuss how rational choice is insufficient in explaining many financial phenomena, leading to the exploration of various irrational behaviors in market participants. The work of Gennaioli and Shleifer is cited as a significant contribution, offering a parsimonious model of expectation formation that combines psychological plausibility with empirical testability, and successfully explains critical financial events through the lens of behavioral biases.