  We study a dynamical Ising model of agents' opinions (buy or sell) with
coupling coefficients reassessed continuously in time according to how past
external news (magnetic field) have explained realized market returns. By
combining herding, the impact of external news and private information, we test
within the same model the hypothesis that agents are rational versus
irrational. We find that the stylized facts of financial markets are reproduced
only when agents are over-confident and mis-attribute the success of news to
predict return to herding effects, thereby providing positive feedbacks leading
to the model functioning close to the critical point.
