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Understanding Behavioral Finance Macro

Inspired by the positive market response to the Trump presidency, this series explores the effect that behavior has on markets and the economy.

This is the first in a series called Behavioral Finance and Macroeconomics. The inspiration for this series comes from the unexpectedly positive response the markets and businesses in general have had to President Donald Trump's proposed economic and tax policies. Why is it that markets have rallied since the election in an arguably fully valued market? Did actual market conditions warrant this? Or is this rally an example of applied psychology in action?

Why is it that businesses and individuals have so much confidence now in the economic prospects of our nation, even when there is significant tumult in Washington, D.C.? What effect does tax policy have on business and investment psychology? And what about deregulation--why is it that when people mention this word, business and industry respond so favorably? What causes bubbles and recessions?