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Behavioral Finance Theory and Crowd Psychology
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Behavioral Finance Theory and Crowd Psychology

  #31 (permalink)
Market Wizard
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Look up Jim Dalton Diffusion Model. I think he does a good job, especially in his explanation of laggards...

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  #32 (permalink)
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DionysusToast View Post
Look up Jim Dalton Diffusion Model. I think he does a good job, especially in his explanation of laggards...

Diffusion model:

Information is the driving force of all markets; information has no power until someone acts on it. Understanding human nature is key to understanding the totality of the auction process. The following behavior is applicable to all independent timeframes: (Chapter Two and Chapter Seven of Markets in Profile and Chapter Six of The Tipping Point offer further elaboration on this topic.)

1. The innovators are the first to act and the hardest to detect; they are mostly individuals and hedge funds that are not driven by committee decisions. They are generally very low-keyed and shy away from publicity.

2. The early adopters are next and climb aboard a trend early in the process. (Remember: these concepts are applicable to all timeframes independently.) They are also less likely to be driven by communal decisions. They can become very aggressive.

3. The early majority are generally the more astute larger organizations and individuals. This group represents the heart of the bell shaped curve.

4. The late majority is led by the larger, slower moving institutions and individuals; those who require substantial information prior to making a commitment or decision. They tend to be more committee based if they are institutional.

5. The laggards are those that are extremely late to the auction; they enter just when the innovators are packing up to go home or have already faded the current auction.



The model assumes that the markets are highly inefficient, as information slowly penetrates the different segments of investors.

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  #33 (permalink)
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Which group?


Which group should we target to be part of?


Fat Tails View Post
Diffusion model:

Information is the driving force of all markets; information has no power until someone acts on it. Understanding human nature is key to understanding the totality of the auction process. The following behavior is applicable to all independent timeframes: (Chapter Two and Chapter Seven of Markets in Profile and Chapter Six of The Tipping Point offer further elaboration on this topic.)

1. The innovators are the first to act and the hardest to detect; they are mostly individuals and hedge funds that are not driven by committee decisions. They are generally very low-keyed and shy away from publicity.

2. The early adopters are next and climb aboard a trend early in the process. (Remember: these concepts are applicable to all timeframes independently.) They are also less likely to be driven by communal decisions. They can become very aggressive.

3. The early majority are generally the more astute larger organizations and individuals. This group represents the heart of the bell shaped curve.

4. The late majority is led by the larger, slower moving institutions and individuals; those who require substantial information prior to making a commitment or decision. They tend to be more committee based if they are institutional.

5. The laggards are those that are extremely late to the auction; they enter just when the innovators are packing up to go home or have already faded the current auction.



The model assumes that the markets are highly inefficient, as information slowly penetrates the different segments of investors.


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  #34 (permalink)
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HighRise1202 View Post
Which group should we target to be part of?

That depends on the current state of the market. If it is trending it is better to be a laggard than an innovator.

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  #35 (permalink)
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I saw this on CNBC. A study based on investors trading from 1990 - 1996. About holding on to losers..

 
 
 
 

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