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World War II or the Second World War was a global conflict that began on 7 July 1937, in Asia and 1 September 1939, in Europe and lasted until 1945, involving the majority of the world's countries and every inhabited continent. Virtually all countries that participated in World War I were involved in World War II. It was the most extensive and expensive apocalyptic armed conflict in the history of the World.
Attributed in varying degrees to the Treaty of Versailles, the Great Depression, nationalism, and militarism, the causes of the war are a matter of debate. On which date the war began is also debated, cited as either the German invasion of Poland on 1 September 1939, the Japanese invasion of China on 7 July 1937 (the start of the Second Sino-Japanese War), or earlier yet the 1931 Japanese invasion of Manchuria. Still others argue that the two world wars are one conflict separated only by a "ceasefire".
Fighting occurred across the Atlantic Ocean, in Western and Eastern Europe, in the Mediterranean Sea, Africa, the Middle East, in the Pacific and South East Asia, and it continued in China. In Europe, the war ended with the surrender of Germany on 8 May 1945 (V-E and Victory Days), but continued in Asia until Japan surrendered on 15 August 1945 (V-J Day).
Approximately 57 million people died as a result of the war, including acts of genocide such as the Holocaust, the Rape of Nanking, and General Ishii Shiro's Unit 731 experiments in Pingfan. As a case of total war, it involved the "home front" and bombing of civilians to a new degree. Atomic weapons, jet aircraft, and RADAR are only a few of many war-time inventions.
Post-war Europe was partitioned into Western and Soviet spheres of influence, the former undergoing economic reconstruction under the Marshall Plan and the latter becoming satellite states of the Soviet Union. Western Europe largely aligned as NATO, and Eastern Europe largely as the Warsaw pact, alliances which were fundamental to the ensuing Cold War. In Asia, the United States' military occupation of Japan led to its democratization, and China came to split into the Communist People's Republic of China and the Nationalist Republic of China.

The belligerents of the Second World War are usually considered to belong to either of the two blocs: the Axis and the Allies. A number of smaller countries participated in the war, more or less voluntarily, on the side of the power that in their neighbourhood was the most influential.
The Axis Powers consisted primarily of Germany, Italy, and Japan, which split the Earth into three spheres of influence under the Tripartite Pact of 1940, and vowed to defend one another against aggression. This replaced the German-Japanese Anti-Comintern Pact of 1936 that Italy had joined in 1937. Spain's fascist government lead by Francisco Franco was a great asset in trade to the Axis powers during the war. A number of smaller countries were counted among the Axis powers, but these countries did not have a profound impact on the war, nor did they supply the Axis powers with any great abundance of troops or supplies.
Until attacked by it in June 1941, the Soviet Union was effectively allied with Nazi Germany through the Molotov-Ribbentrop Pact, invading and occupying parts or the whole of Poland, Finland, Estonia, Latvia, Lithuania, and Romania.
Among the Allied powers, the "Big Three" were the United Kingdom, from 3 September 1939, the Soviet Union, from June 1941, and the United States, from December 1941. China had been fighting Japan since 1937. The independent dominions and colonies of the British Empire, Australia, Brazil, Canada, France, Poland, the Netherlands, Belgium, Norway, Greece, and Denmark were also counted among the Allies, though many would ultimately be conquered and occupied by Axis forces.

In Britain and America women joined the work force in jobs that the men overseas used to occupy. Families also grew victory gardens, small home vegetable gardens, to supply themselves with food during the war. They did this because the food was limited and they had to use ration stamps to get food. Sugar and coffee were especially hard to get, and gasoline was also rationed, as was silk. Schools and organizations held scrap drives and money collections to help the war effort. Many things were conserved to turn into weapons later, such as fat left over from cooking. This was later used to make explosives such as nitroglycerin. Franklin D. Roosevelt stated that the efforts of civilians at home to support the war through personal sacrifice was as critical to winning the war as the efforts of the soldiers themselves, and that the civilian populace constituted an additional front at home.
In Germany, at least for the first part of the war, there were surprisingly few restrictions on civlian activities. Most goods were freely available.
Civilian populations were heavily involved in war production and subject to propaganda from their governments.

During the classical period, economics had a close link with psychology. For example, Adam Smith wrote an important text describing psychological principles of individual behavior, The Theory of Moral Sentiments and Jeremy Bentham wrote extensively on the psychological underpinnings of utility. Economists began to distance themselves from psychology during the development of neo-classical economics as they sought to reshape the discipline as a natural science, with explanations of economic behavior deduced from assumptions about the nature of economic agents. The concept of homo economicus was developed and the psychology of this entity was fundamentally rational. Nevertheless, psychological explanations continued to inform the analysis of many important figures in the development of neo-classical economics such as Francis Edgeworth, Vilfredo Pareto, Irving Fisher and John Maynard Keynes.Psychology had largely disappeared from economic discussions by the mid 20th century. A number of factors contributed to the resurgence of its use and the development of behavioral economics. Expected utility and discounted utility models began to gain wide acceptance which generated testable hypotheses about decision making under uncertainty and intertemporal consumption respectively, and a number of observed and repeatable anomalies challenged these hypotheses. Furthermore, during the 1960s cognitive psychology began to describe the brain as an information processing device (in contrast to behaviorist models). Psychologists in this field such as Ward Edwards, Amos Tversky and Daniel Kahneman began to benchmark their cognitive models of decision making under risk and uncertainty against economic models of rational behavior.Perhaps the most important paper in the development of the behavioral finance and economics fields was written by Kahneman and Tversky in 1979. This paper, 'Prospect theory: Decision Making Under Risk', used cognitive psychological techniques to explain a number of documented anomalies in rational economic decision making. Further milestones in the development of the field include a well attended and diverse conference at the University of Chicago (see Hogarth & Reder, 1987) and a special 1997 edition of the respected Quarterly Journal of Economics ('In Memory of Amos Tversky') devoted to the topic of behavioral economics.
MethodologyAt the outset behavioral economics and finance theories were developed almost exclusively from experimental observations and survey responses, though in more recent times real world data has taken a more prominent position. fMRI has also been used to determine which areas of the brain are active during various steps of economic decision making. Experiments simulating market situations such as stock market trading and auctions are seen as particularly useful as they can be used to isolate the effect of a particular bias upon behavior; observed market behavior can typically be explained in a number of ways, carefully designed experiments can help narrow the range of plausible explanations. Experiments are designed to be incentive compatible, with binding transactions involving real money the norm.[edit]
Key observationsThere are three main themes in behavioral finance and economics (Shefrin, 2002):Heuristics: People often make decisions based on approximate rules of thumb, not strictly rational analyses. See also cognitive biases and bounded rationality. Framing: The way a problem or decision is presented to the decision maker will affect their action. Market inefficiencies: Attempts to explain observed market outcomes which are contrary to rational expectations and market efficiency. These include mispricings, non-rational decision making, and return anomalies. Richard Thaler, in particular, has written a long series of papers describing specific market anomalies from a behavioral perspective. Market wide anomalies can not generally be explained by individuals suffering from cognitive biases, as individual biases often do not have a large enough effect to change market prices and returns. In addition, individual biases could potentially cancel each other out. Cognitive biases have real anomalous effects only if there is a social contamination with a strong emotional content (collective greed or fear), leading to more widespread phenomena such as herding and groupthink. Behavioral finance and economics rests as much on social psychology as on individual psychology.There are two exceptions to this general statement. First, it might be the case that enough individuals exhibit biased (ie. different from rational expectations) behavior that such behavior is the norm and this behavior would, then, have market wide effects. Further, some behavioral models explicitly demonstrate that a small but significant anomalous group can have market-wide effects (eg. Fehr and Schmidt, 1999).[edit]
Behavioral finance topicsKey observations made the behavioral finance literature include the lack of symmetry between decisions to acquire or keep resources, called colloquially the "bird in the bush" paradox, and the strong loss aversion or regret attached to any decision where some emotionally valued resources (e.g. a home) might be totally lost. Loss aversion appears to manifest itself in investor behavior as an unwillingness to sell shares or other equity, if doing so would force the trader to realise a nominal loss (Genesove & Mayer, 2001). It may also help explain why housing market prices do not adjust downwards to market clearing levels during periods of low demand.Applying a version of prospect theory, Benartzi and Thaler (1995) claim to have solved the equity premium puzzle, something conventional finance models have been unable to do.
Behavioral finance modelsSome financial models used in money management and asset valuation use behavioral finance parameters, for exampleThaler's model of price reactions to information, with three phases, underreaction - adjustment - overreaction, creating a price trend The stock image coefficient.
Criticisms of behavioral financeCritics of behavioral finance, such as Eugene Fama, typically support the efficient market theory. They contend that behavioral finance is more a collection of anomalies than a true branch of finance and that these anomalies will eventually be priced out of the market or explained by appeal to market microstructure arguments. However, a distinction should be noted between individual biases and social biases; the former can be averaged out by the market, while the other can create feedback loops that drive the market further and further from the equilibrium of the "fair price".A specific example of this criticism is found in some attempted explanations of the equity premium puzzle. It is argued that the puzzle simply arises due to entry barriers (both practical and psychological) which have traditionally impeded entry by individuals into the stock market, and that returns between stocks and bonds should stabilize as electronic resources open up the stock market to a greater number of traders (See Freeman, 2004 for a review). In reply, others contend that most personal investment funds are managed through superannuation funds, so the effect of these putative barriers to entry would be minimal. In addition, professional investors and fund managers seem to hold more bonds than one would would expect given return differentials.