The Most Predictable “Irrational” Behavior in Markets

Yet it is one of the rarest.

TL;DR

• Panic selling is rare at the individual level, but consistent at the population level. It is regular and predictable enough that a simple machine learning model can predict with 70-80% accuracy who will panic-sell and who will not.

• Certain traits significantly increase the likelihood of panic selling: being self-employed or a business owner, having many dependents, and viewing yourself as a highly experienced or knowledgeable investor are the most predictive.

• Panic selling during a major crisis can actually be a good decision and lead to outperformance for years afterward.

• The real cost comes from panic selling outside major crises and then staying out of the market for too long.