(2001): The essential Buffet, John Wiley & Sons, Inc. New York. 2  Cutler, D., J. Poterba and L. Summers (1991): Speculative dynamics, Review of Economic Studies 58, pp. 520-546. 3  See e.g. Tversky, A. and D. Kahneman (1974): Judgement under uncertainty: heuristics and biases, Science 185, pp. 1124-1131. 4  an analogy with a game of poker. In normal times the market behaves like a game of roulette; the probabilities are known and independent of the investment decisions of the different players. In times of market stress, though, the game becomes poker. The players have to take into consideration the position of others and their likely behaviour. We are also liable to succumb to wishful thinking. An example that confronts me almost daily at present is when supporters of a national football team, for instance, are frequently over-confident about the chances of winning. Learn from history The so-called IT boom, combined with markedly lower transaction costs as a result of new technology, induced many inexperienced people to invest in shares. Moreover, access to the Internet leads to an increased number of share transactions, often with poorer results. Investors have also become younger. The same tendency applies to stockbrokers and analysts, many of whom began their careers in the 1990s. Inexperienced investors did not get the assistance and support they needed. In the period running up to the Nasdaq crash, less than 1 per cent of the analyst’s recommendations had been to sell.
Urban Bäckström: The importance of a well-functioning stock market Remarks by Mr Urban Bäckström, Governor of Sveriges Riksbank, at the World Federation of Investors 20th World Congress, Stockholm, 7 June 2002. *  *  *  First I want to express my gratitude for the invitation to attend your congress and briefly discuss with you the importance of a well-functioning stock market. Let me start by saying that just as it is important that networks for transport, electricity and telecommunications function properly, so is it essential that, for example, payments can be transacted, capital can be saved and channelled to the most profitable investment projects and that both households and firms get help in handling financial uncertainty and risk as well as possibilities of spreading consumption over time. Financial markets constitute an important part of the total infrastructure for every economy that has passed the stage of domestic production. The financial system performs three main tasks: firstly, it handles payments; secondly, it channels savings to investments with a good return for future consumption; and thirdly, it spreads and reduces economic risks in relation to the players’ required returns. A smooth functioning of all these activities facilitates economic growth in that lower costs and risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. The stock market is one of the most important sources for companies to raise money.