The application and understanding of feedback model

Abstract

Before feedback model was widely used, there were many authoritative theories and tools to study and quantify the financial world, including efficient market theory. However, some excessive fluctuations of the stock cannot be explained by the efficient market model, or even deviate from the efficient market theory. This phenomenon attracted the attention of behavioral finance experts led by Shiller, and worked out the formula of feedback model, trying to explain the abnormal volatility. Many psychologists and economists have made outstanding contributions to the study of feedback model, but there are few applications of this model. This paper conducts application and case analysis of feedback model, including economic decline affected by COVID-19, running on foreign currency in the Ukrainian-Russian conflict, and the application of feedback model in prosperous economies. Through the analysis of the above three situations, the feedback model is re-understood, hoping to provide help to the future research on the feedback model.