Once the cradle of European civilization, Greece is now at the epicenter of Europe’s economic crisis. The now-fading consensus in the market and among opinion-makers was that Greece is likely to fail, taking the euro zone with it. The country’s sovereign debt, which a few months ago was priced only a few basis points above Germany’s, has been trading higher than Pakistan’s in the credit default swap market.
Mimicry plays an important role, and market participants often tend to “follow the herd,” but does this sufficiently explain the negative consensus on Greece? Indeed, there are lessons to be learned from neuroscience on what distorts our cognitive abilities that are highly relevant to understanding the Greek crisis.… Seguir leyendo »