What Are the Psychological Differences between Retail and Institutional Investors during a Death Spiral?

The psychological differences between retail and institutional investors during a death spiral are often quite pronounced. Retail investors are more susceptible to emotional decision-making, such as panic selling, driven by fear and social media trends.

They may lack the resources and experience to conduct in-depth analysis during a crisis. In contrast, institutional investors, while not immune to psychological pressures, tend to be more disciplined and data-driven.

They often have risk management frameworks and predefined strategies that dictate their actions. However, institutional investors can also contribute to a death spiral through coordinated selling or by withdrawing liquidity, albeit in a more calculated manner than the emotionally driven selling of retail investors.