Sunk Costs Fallacy in Subprime Bubble
DOI:
https://doi.org/10.29105/rinn17.33-4Keywords:
Bubble, Financial, Subprime, Sunk costs fallacyAbstract
Financial Bubbles have been interest of many people, especially in the academic area. It is necessary to understand them with the seriousness that they deserve, due to their potential to cause social, economic and political disruptions. In this paper I talk about the subprime bubble and its general conditions but it is enriched with the contributions of the behavioral finances, specifically with the role of sunk costs fallacy in the behavior of housing mortgagers instead of the stock investors, as it is usual to talk about them in several researches. It is suggested that sunk cost fallacy may provide an additional and important point of view to understand this financial bubble from a parallel market point of view, because this fallacy could be the reason of holding mortgages that eventually became impossible to get paid, which is supported with the fact of relaxation in credit policy and unethical practices of the banks. Finally, they are discussed, the main consequences and chances experienced after the bubble, putting into consideration to explore this behavior with further researches in housing investors.
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