Brain & Economics

Understanding decision making

2008 Crisis

Evolution: 1993 a 2008

The period between the years 1993 and 207 was a period of increasing gains in the burses around the world, as it can be seen in the figure bellow, showing the evolution of the of the mean normalized indices of 20 markets.

Regression analysis shws that the evolution of mean index can be modeled by a exponential function, with an accuracy of 66%.

Starting on November, 2007, this trend is reversed, beggining a crisis that reached its ] deepest level on October, 2008.

It can be seen in the figure bellwo, that the index start to depart from the world economic growth trend described by the exponential function in the figure. This departure reaches its maximum in November, 2007. From this moment on, a process for correcting this discrepancy starts and continues until the end of 2008, when the index approaches again the expected world economic power.

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Average Normalized Index
World Trading

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Automatic Trading

The Financial Market panic the last May, 6, when an error on automatic trading provoked huges losses:

" What appeared to be a bad day for the bourses around the world, turned a nightmare. Around 3pm (Brasilia time) the Dow Jones lost more than 1000 points in minutes. In fifteen minutes the index lost 7% of its value besides the losses being experienced during the day.".

Although, it seems that a typing error by an employee of a big bank was blamed to be the responsible for the crash, the neuroeconomic modelling proposed in this site was already pointing for existance an unstable model state subjected to anomalous index movements for that period, 180 minutes before the incident took place. It seems that error triggered the crash because the system state was unstable, otherwise the error could not provoke important results.

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New Release

:: Brain and Economics :: 2010 ::