Fin 4201/8001 1 Lklklk Behavioral Finance. Fin 4201/8001 2 Lklklk Overconfidence.
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Transcript of Fin 4201/8001 1 Lklklk Behavioral Finance. Fin 4201/8001 2 Lklklk Overconfidence.
Fin 4201/8001 1
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Behavioral Finance
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Overconfidence
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Better than a poke in the eye with a sharp stick Disposition effect - Reference points
Pride & Regret = Pain & Pleasure
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House Money Cognitive dissonance
Consider the past
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Mental Accounting
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Forming Portfolios
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Representativeness and Familiarity
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Social Interaction
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Emotion and Decision
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Self Control and Decisions
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Prospect Theory Value Function
Normal Distribution
A large enough sample drawn from a normal distribution looks like a bell-shaped curve.
A large enough sample drawn from a normal distribution looks like a bell-shaped curve.
Probability
Return onlarge company commonstocks
99.74%
– 3 – 49.3%
– 2 – 28.8%
– 1 – 8.3%
Mean12.2%
+ 1 32.7%
+ 2 53.2%
+ 3 73.7%
The probability that a yearly return will fall within ± 1 standard deviation (± 20.5%) of the mean is approximately 68%.
68.26%
95.44%