Greed and fear

Greed and fear are among the animal spirits that Keynes identified as profoundly affecting economies and markets.

In other words, it can be deduced that certain traders who join the business world for the emotional agitation and desire of hitting that emotional high, are addicted to the release of certain brain chemicals that determine those states of happiness, euphoria and relaxation.

Furthermore, humans' brains are naturally activated by financial awards, which in the same way as drugs produce an incredible but perilous feeling and thus an addictive experience.

[5] The emotion of fear is usually characterised as an inconvenient, stressful state, triggered by impending peril and awareness of hazard.

In pursuance of solutions to suppress their losses after the Internet bubble crash, fearful investors decided to swiftly move out of the stock markets concentrating their attention on less uncertain purchases, spurring their capital into stable value funds, principal protected funds and low risk and return investments in general.

Such behaviour is an example of a complete negligence of long term investing plan which is based on fundamentals.

Investors disregarded their plans because of fear of committing persisting losses, which identically did not bring any profits and benefits.

[citation needed] Some academics disagree with the notion that greed and fear are main emotions driving financial markets.

According to psychologist Lola Lopes, while fear is indeed a crucial factor driving financial markets, the majority of investors don't respond that much to greed but to hope.

[10] In other words, VIX can be defined as a sentiment ratio of Wall Street's fear or greed gauge.