Because the problems we meet are so complicated and the information we get is incomplete and anisomerous, we cannot get rational conclusions of every thing we observed. Instead, we get wrong cognize by applying simplified rules. The result is that we may use more subjective methods to make decision. People like to believe that good decision-making is a consequence of the use of reason, and that any influence that the emotions might have is antithetical to good decisions. What is not appreciated by Mises and others who similarly rely on the primacy of reason in the theory of choice is the constructive role that the emotions play in human action. ( Vernon L. Smith, Reflections on Human Action after 50 years. Cato Journal, Vol. 19, No,2 Fall 1999, Cato Institute., P 203.) .
In the research of Shleifor(1998), he found that influenced by the emotion of regret, fear and short-sight, investors usually undervalue the stock prices of the companies which were recently in the trouble. In the same reason, investors usually overvalue the stock prices of the companies that they believe would grow up very fast. However, the investors don't know whether these companies would become better or not. So, people are ultimately driven by their emotions, not their logic, they are often irrational in making investment decision.
3. The asymmetry of information.
In the classical economic theory, it states that markets require buyers and sellers to agree upon a price before a transaction can occur certainly not that sellers are irrational if they do not sell at the price that buyers are willing to pay. And the markets become efficient (EMH). But it depends on that the sellers and buyers all know the actual prices of the goods. This means they have the same information and the some knowledge of the goods to make decision. However, In fact, people cannot know everything around them. As Will Rogers once said, "Everybody is ignorant, only on different subjects.
