Classic economic theory suggests that participants in an economy act in a modest manner. The rationality principle says that "people act rationally in the sense that they tend to adopt means which, according to them, are oriented towards the satisfaction of their goals". In short, "it supposes that people are not stupid". Everyone who is able to use reason knows that this model of the Homo oeconomicus cannot correspond with the reality. Even Homo sapiens is too optimistic already, as it is commonly known. Undoubtedly, most people seek to maximise returns. Too many all too human characteristics, however, interfere in this process, which makes success rare.
So-called positive egoism is one thing that keeps us from achieving perfection. This concept says that humans always act in a way that will benefit them. However, "they may disguise their motivation with references to helping others or doing their duty". In other words, people who consider themselves altruistic act as much in their self-interests as everyone else. For example, somebody giving money to a beggar may do this only, in order to avoid a negative feeling of guilt for being in a privileged position. An individual's motive to give another person a gift is probably the wish to maintain the relationship, which might be especially beneficial for the giver. .
Egoism is not the single characteristic that distinguishes us from flawless machines. Emotions play as well a very crucial role in our lives. Since an economy consists of people, it is strongly influenced by our tendency to exaggerate, our need for security, and our unique ability to forget. The behaviour of stock markets depicts particularly well human actions. Moreover, overall development of share trading has become a main economic indicator. Hence I am going to have a closer look at such markets to examine the psychology of economics.
Stocks.
At the NYSE, stunning 1.4 billion shares were traded daily during 2002 and the average price per share was exactly USD 28.