A chap called Chris Dillow, of whom I had never heard, wrote a very interesting article on the Times Online about the one thing you must never ask an economist - which is anything about economics and wealth creation.They know lots about why people do things ( and some really bizarre things too - read Steve Levitt's Freakonomics) but have no idea what that knowledge translates to in the economy.
I have always maintained that everything links back to economics in some way, and, indeed, any problem I have pondered within the last quite a number of years has been solved by applying economic principles ( basically you catch more flies with sugar than with vinegar - shocking discovery isn't it).
Anyway, Mr.Dillow wrote the following - the bold words are stressed by me.
"Rationality is ambiguous. It would have been reasonable for the market to react with optimism to the ECB’s cash injection last week – “there’s more money around”. If so, it would have been an example of what the American philosopher Robert Nozick called – apologies for the jargon – causal expected utility. The pessimistic reaction – “things must be bad” – is what he called evidential expected utility. Both principles, he explained, are rational. Both are also contradictory and it is utterly arbitrary which way the market will jump. The idea that the rational response leads to a clear course of action is wrong."
So there you have it. This is actually the entire reason the stock market moves. Some people think buy and others think sell, and for exactly the same reason.
Although he didn't say it, there was another lovely insight. Women gravitate to men with money. Men gravitate towards good looking women. Of course, there are exceptions that prove the rule....