Showing posts from March, 2014

Role of Psychology in the financial crisis of 2007-2008

Representative Image This Subject interests me and hence i thought of putting this blog here. Psychology played a critical role in explaining the “irrational behavior” of various financial institution entities which might have led to the subprime crisis of 2007-2008. this is a summary written on original   paper   by Nicholas Barberis. Surge in the housing Prices: The growth of the bubble can be attributed to the  belief based theory of overvaluation  where investors  extrapolate past outcomes.  Here in this case, the prior growth in housing price made the buyers believe that the growth will continue and bought houses with excessive loan to asset value ratio. Similarly, the financiers believed in the housing prices growth story and provided oversupply of subprime loans to buyers. These loans were securitized by complex  financial innovations  and sold to investors.  Here, this belief theory of extrapolation had its greatest impact where the security rating agency awarded r

Magic Lamps and Genie

Magic Lamp In the Arabian nights, prince Aladdin had a Magic lamp. On rubbing the magic lamp, a genie used to appear and help Aladdin in achieving his wishes. As children we were mesmerized by the magic that happened to call the genie and its awesome capabilities of the genie. By 2015, there would be more than 15 Billion connected devices . Social Media technologies – Facebook, Twitter, Hangouts are connecting people and devices together. Technological advancements in wearable technologies – Google Glass, Samsung watches, Fitbit Heatlh bands etc are innovating new ways of human interactions.  Smart combination of all these is changing the paradigm of how companies are approaching the customers. Magic is happening around us as these technologies are getting more evolved and more innovative Now each device has become a Lamp itself. By Push of a button, we are seeing prompt customer services. For example, the “ mayday” button of Amazon fire has response time of 15 seconds an