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Psychology changes in a bull-bear market (I)

If this principle were followed, then the volume would be small in a bull market and large in a bear market. However, in fact, the opposite side is the real world, due to the different psychology of investors in bull and bear markets. To explain the phenomenon, let's look at an interesting experiment first conducted by Kahneman and Travis in 1981.

Answer the question: 600 people are infected with a deadly disease, and there are two drugs available: (A) It could save 200 lives. (B) has a 1/3 chance of curing everyone, and a 2/3 chance of saving none. Which drug do you choose? Choose A you are sure you can save 200 people, choose B you want to bet on how many people you can save, 72% of the respondents chose A because you are afraid to bet on how many people you can save. Here's another question: 600 people are infected with a deadly disease, and there are two drug options (A) that will definitely kill 400 people and (B) that have a 1/3 chance of curing all of them and a 2/3 chance of saving none of them. Would you choose to kill 400 people? No, there is at least the possibility of saving everyone's life: only 22% of people chose A on this question.

This experiment shows that people's attitudes towards gains and losses are different, i.e. they prefer to gamble on losses rather than gains. Applied to the financial markets, suppose you bought a stock that had already lost money, and you would bet, like most other people, that it would one day go back up. Now suppose, again, that the stock you bought has already made a profit, and this time you won't gamble again; what you'll do is simple: sell immediately and put it in your pocket.

The anticipation theory in finance holds that for gains and losses of the same magnitude, we place a higher value on the gains, and on a deeper psychological level, the regret theory can be used to explain this phenomenon. The theory argues that when people speculate in the stock market when the decision is correct, it brings pride, and when it fails, it always brings regret, so most people dare not face the reality of failure, and are more willing to gamble to lose than to win. That is when losing, holding the stock (betting that it will go back up) is not necessary to admit that we made a mistake, after all, the stock is still in hand, and thus when the stock market falls will tend to stop trading.

And when the market goes up and investors start making money, the situation is quite different: the winner has nothing to hide. But most investors prefer to think of their success as the result of personal struggle and hard work, rather than luck. Social psychologists refer to this phenomenon as "hubris". On average, we are all conceited, and most people believe that they are above average in every virtue. In the case of stock traders struggling in a bull market, the theory is that many of them attribute their recent gains in the stock market (even if their returns are below the market average) to their above-average investment performance. Because they consider themselves to be at a superior level, they operate more frequently. As a result, the significant increase in volume in a bull market is largely due to confidence, in the same way, that regret makes everyone hold back and volume shrinks dramatically in a bear market.

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