Mohamed A. El-Erian , Columnist

Prepare for Market Beliefs to Be Challenged

A long list of developments should have resulted in higher volatility.

March 8, 2017 at 7:00 AM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

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Deeply ingrained beliefs can be hard to dislodge -- and especially in markets when they have led to high investment returns over a prolonged period. That can encourage certain behaviors to last even in the face of contradictory indicators; and it may take a very large set of inconsistent data for behaviors to change.

This tendency -- underpinned by what behavioral finance calls “belief perseverance,” “confirmation bias” and “attitude polarization" -- could be one of the reasons that financial markets have confidently brushed off what has been a growing list of developments that otherwise would have resulted in higher volatility. It includes just in the last couple of weeks: