A glimpse of thought: Risk seeking and boom-bust circle

In my leisure time, I read two article about the boom and bust of economic circles: one article is about how Ching Dynasty is doomed by a rubber price mania in early 20th century, the other is about the housing price in Europe now, at least in some regions, are coming back.

This gives me a thought: How to study people's risk-seeking behaviors!




In economic theories, or at least in some of these theories, we know people tend to be risk averse, and consider these extraordinary "risk-seeking" activities are "mania".

And, if this mania results into "bust", then people tend to agree that a form of authority, either central bank or a branch of government, should come and intervene the situation. a "deviation" from normal economic course should be "corrected" and "restore" the economic orders.

There are a few things worth some more investigations into these common assertions, or say, common expectations:

1.) are people really risk averse?

I think we can agree that risk is not somehting we seek most of time. In daily life when we observe our friends and families, probably we do not see much of "gamblers" around. However, they probably gamble in the ways they do not perceive. For example, lots of Taiwanese people place their money in stock market, and some of them even believe they could earn a great fortune out of it....(and usually loose a lot) They are gambling, but they won't admit that.

This "gamble without awareness" has two facets, of course, good and bad. When there is dotcom bubbles, the numbers of online companies shot up!! Survivors are few but we do have better online services nowadays. Some failure leads to a fabulous ideas/companies these days. This is the good side. However, the bad size is the messup needs to be cleared up afterwards...such as the national debt crisis now.

I would say people are still most risk averse. However, without knowing the risk content, they can be extraordinarily brave........(or...you know the word :P)

2.) Should government intervene, or if they do intervene, should they intervene earlier in boom times?

In a liberal economic setting, people should bear the fruit of their actions: if they act, regardless awareness, as risk seeker, then they should bear the fire and to be burned in bad times.

However, in situations that could result into a total economic melt-down, higher authority can hardly put aside their responsibility. The question at steak would be: how they should get themselves involved and how much they should deployed? Do they have adequate resources?

There are a lot of questions I lay out here. It seems there are still a lot to do in research!!