What mechanisms are at work when the market falls dramatically one day and then rises just as dramatically the next? We've seen this scenario several times over the past few weeks:  The major stock market indexes will plummet one day and then rise dramatically (though perhaps not to the previous days starting price) on the following day.  Yes, in some of the cases there was a policy pronouncement or some such that might have had some effect, but usually not.

One would think that traders, if they were doing a normal risk/benefits analysis, would not change strategies so abruptly.  Is there some non-obvious benefit to abruptly "betting" one direction and then the other, or is some sort of mechanical market force at work?
In short...human nature! (I'm only half-kidding). Of course, mechanically, what drives these abrupt changes is simply a large amount of buyers one day...and a large amount of sellers the next. 

A great metaphor you might like is Mr. Market. Also this video of Warren Buffett talking about Mr Market. It's just a metaphor used to show how capricious, and seemingly irrational, the market can be. 

I don't think there's some philosophically deep mechanism at play (other than human nature). Maybe you could make the argument that new information comes out that justifies a 5-10% swing...but that argument seems flimsy to me.