According to classical economic theory, investors behave in accordance with rational expectations - meaning that they are purely driven by wealth considerations and, on average, are right in their decisions. One outworking of this is that markets are efficient, meaning that the current price of a security provides the best estimate of what it is worth and that behavioural traits such as human emotions play no role in the pricing process.

In reality, of course, investors are motivated by factors other than wealth and their...