BEHAVIORAL • Prateek Rampuria

•Manasi Shenoy
•Sukesh Manchikalapati

FINANCE •Upasa Borah

FATE OF THESE COMPANIES
WENT FROM OVER $ 400 BN
TO
 BUT HOW DID IT ALL START?

THE SAGA
During the late 20th century, the Internet created a euphoric attitude toward business and
inspired many hopes for the future of online commerce. For this reason, many Internet
companies (known as “dot-coms”) were launched, and investors assumed that a company that
operated online was going to be worth $$$$$$$.

But, obviously, many dot-coms were not rip-roaring successes, and most that were successful
were highly overvalued. As a result, many of these companies crashed, leaving investors with
significant losses.

In fact, the collapse of these Internet stocks precipitated the 2001 stock market crash even more
so than the September 11, 2001 terrorist attacks. Consequently, the market crash cost investors
a whopping $5 trillion.

From individual dreamers to major corporations, Internet entrepreneurs were enamored with
dreams of becoming dot-com millionaires (or billionaires).
Many investors foolishly ignored the fundamental rules of investing in the stock market, such as
analyzing P/E ratios, studying market trends, and reviewing business plans
Amazon stock fell from $107 to
just $7

One company paid $8 million for an ad

campaign featuring Whoopi Goldberg.
Another bought a float in the Macy’s
Thanksgiving Day parade.
ROLE OF HEURISTIC
BIASES INVOLVED IN THE DOTCOM BUBBLE
Overconfidence Bias:

 Placing too much faith in your knowledge or perception

Believing that your contribution to a decision is more

valuable than it actually is

Pertains to how well people understand their own abilities

and the limits of their knowledge
BIASES INVOLVED IN THE DOTCOM BUBBLE
Confirmation bias works subtly inside the minds of
investors as they seek nothing more than to make the
best possible decisions with their money. Confirmation
bias tricks the mind into giving more credence to the
pros, if there is already a preconception in favor of it.
Or, more overtly, it simply allows us to dismiss or
discount information that doesn’t conform to our
beliefs. That’s a very dangerous mindset when your
money is at stake.
HERDING

BIAS
The internet caught the fancy of people in the 1990's. This prompted many companies to
promise life-altering changes.

The burst of dotcom bubble once again highlighted the fact that the performance of a stock is
dependent on performance of the company. As Peter Lynch says "I think you have to learn that
there's a company behind every stock, and that there's only one real reason why stocks go up.
Companies go from doing poorly to doing well or small companies grow to large companies.“

biases mentioned in this project are innate to each one of us and it will be unreasonable to state
that we can extract all of the biases from within us. But nonetheless we can always try to read
more about them and understand the practicality aspect of each bias so that in future we may
become more observant, concerned and critical about the decisions we make. This will help us
reduce and mitigate risk if not devoid of the same.