Inefficient Market Irrational exuberance in US housing

The new branch of economics, known as behavioral finance, has provided us with many insights into investor psychology and the nature of asset price bubbles. It can improve our understanding of the «frothy» US housing market. However, behavioral finance suffers from a profound limitation: it assumes that investor irrationality alone explains why asset prices deviate from fundamental value. In fact, as far as the real estate market is concerned, the flow of credit is far more important than invest...