...Title Page Introduction a. Global Health Issues b. Economic Impact Behavioral Finance a. Emotional Biases i. Risk Aversion ii. Regret Aversion Market Implications a. Every market in today’s economy was impacted either directly or indirectly by the SARS epidemic. i. Most saw measurable decreases in GDP b. Global cost of lost economic activity due to SARS was approximately $54 billion Conclusion a. Economic damage caused by SARS can be attributed to the behavioral finance emotional biases of loss aversion and regret aversion affecting investors globally. Global Health Issues, Behavioral Finance and the Markets: The Role of Behavioral Finance in how Global Health Issues Impact the Economy Jonathan Davis David A Kennedy Lee V Smith Tayler T Young Syed Zain T Zaidi November 10, 2015 University of Houston- Downtown Global Health Issues, Behavioral Finance and the Markets: The Role of Behavioral Finance in how Global Health Issues Impact the Economy With globalization on the rise, infectious diseases that appear in one country have the opportunity to spread rapidly to others. Recent examples include the 2003 outbreak of Severe Acute Respiratory Syndrome (SARS) and the 2014 outbreak of the Ebola virus. According to the World Health Organization (WHO), 8,098 individuals became infected worldwide with SARS and 774 of those individuals ultimately died from the illness (CDC, 2005). While Ebola killed 5,160 out of the 14,098 people...
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...Volunteer Behavioral Health, located throughout 31 counties of middle and southeast Tennessee, is a not-for-profit community-based outpatient provider. Located in downtown Chattanooga, my field agency’s mission is to serve individuals, families, and the community through prevention, treatment, and recovery services. Volunteer Behavioral Health offers adult services, treatment for addiction and co-occurring disorders, children and youth services, and crisis services. Adult services vary and range from case management, designed to help families and individuals cope with serious mental illness, to psychiatric services and medication management provided by psychiatrists and nurses. Treatment for addiction and co-occurring disorders include outpatient...
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...Jade July 26, 2015 Mental/Behavioral Case Studies My 57-year-old client, Mr. Speed, has recently been diagnosed with Alzheimer’s disease. At this time, he seems to be in the early stage of the disease, and I feel that he would benefit from medication and therapy. He lives with his wife, and both of them are employed full time. He would like to continue working and living life to the fullest. Alzheimer’s disease, the most common form of dementia, is a brain disease that progressively destroys thinking skills and memory. Although the cause of this disease is unknown, researchers believe that the accumulation of the protein amyloid in the brain may contribute to its onset. Although most individuals diagnosed with Alzheimer’s disease are 65 years of age and older, it is not uncommon to develop the disease at a younger age, like my client, Mr. Speed. Early-onset Alzheimer’s has been known to affect people in their 50’s.Jade Galvan HCS/245 July 26, 2015 Mental/Behavioral Case Studies My 57-year-old client, Mr. Speed, has recently been diagnosed with Alzheimer’s disease. At this time, he seems to be in the early stage of the disease, and I feel that he would benefit from medication and therapy. He lives with his wife, and both of them are employed full time. He would like to continue working and living life to the fullest. Alzheimer’s disease, the most common form of dementia, is a brain disease that progressively destroys thinking skills and memory. Although the cause of this disease...
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...Mental/Behavioral Case Studies Tony Claiborne HCS/245 November 26, 2014 Lori Olson Jim Wolf is a 45 year old store owner who constantly washes his hands. He continually checks and rechecks his part lists, equipment, and his employee’s schedules. After his wife raises concerns about his work performance and inability to sleep, he is referred to a physician. A psychiatrist has diagnosed him with OCD. OCD is an anxiety disorder that has two parts, obsessive and compulsive. The obsessive portion relates to an individuals consistent thought process or emotion over things. The compulsive portion relates to the individual not being able to resist the act of performing acts. With OCD, the individual is unable to stop their thought processes or action in doing tasks (Neighbors, 2014). Based on the disease and stage it presents, Jim should receive a primary level of care. The two main types of treatment for OCD are psychotherapy and medications. Receiving both types of treatment should allow Jim to live a better life without having the anxiety about his daily compulsions. Jim and others can find more information about the cause, effect, and treatment options available from their primary care provider (PCM) or from reputable medical journals and hospital websites. The Mayo Clinic offers some valuable and reputable information at http://www.mayoclinic.org/diseases-conditions/ocd/basics/treatment/con-20027827. Coping with obsessive-compulsive disorder can be challenging. Medications...
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...Simple Stimulus Learning Detra Mathias PSYCH/535 Dr. Ming Zheng February 11, 2013 Simple Stimulus Learning Learning involves obtaining new knowledge. Learning involves exposure to various stimuli within one’s environment. An organism’s behavior is the result of learning to respond to stimuli. Animals and humans acquire knowledge through simple stimulus learning. The purpose of this paper is to explain the concept of habituation, evaluate issues affecting perceptual learning, and examine outcomes of stimulus exposure. In addition, this paper will discuss the application of simple stimulus leaning to two real life situations. Concept of Habilitation Habituation is a decrease in response after constantly introducing an unconditioned stimulus within the environment. It involves the basic changes that occur in an organism as a result of learning. An organism will respond less to a stimulus; the more it is introduced to the organism’s environment, and the organism becomes more familiar with the stimulus (Sullivan, 2009). For example, an individual receives a new cell phone and the ring tone alert for notifications initially startles him or her. However, after becoming familiar with the sound, the individual pays less attention to the sound and his or her response diminishes. Habilitation demonstrates...
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...Without Mr. Sandberg’s and Mr. Östebo’s contribution, this thesis would not have been possible to complete. To all the respondents: thank you for your participation! _____________ Hannes Bernéus ____________ Carl Sandberg Jönköping International Business School Date: 2008-12-11 i _____________ David Wahlbeck Bachelor Thesis within Business Administration Title: Authors: Tutor: Date: Subject terms: Behavioral Finance – Investors’ Rationality. Hannes Bernéus, Carl Sandberg, David Wahlbeck Urban Österlund 2008-12-02 Behavioral Finance, Behavioral Economics, Finance, Economic Psychology. Abstract Purpose: The purpose of this thesis is to examine if professional investors are indicating tendencies of irrational behavior when exposed to certain psychological dilemmas related to the financial world. Background: A new field within financial theory emerged in the 1980s; one which did not build on fundamental cornerstones but from the world of psychology, called Behavioral Finance. The theories within Behavioral Finance also offered a new perspective when explaining market movements. The market is determined by people who can not always be considered rational in their investment decisions, especially not during times of financial distress...
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...THE JOURNAL OF FINANCE • VOL. LVI, NO. 4 • AUGUST 2001 Investor Psychology and Asset Pricing DAVID HIRSHLEIFER* ABSTRACT The basic paradigm of asset pricing is in vibrant f lux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for understanding decision biases, evaluates the a priori arguments and the capital market evidence bearing on the importance of investor psychology for security prices, and reviews recent models. The best plan is . . . to profit by the folly of others. — Pliny the Elder, from John Bartlett, comp. Familiar Quotations, 9th ed. 1901. IN THE MUDDLED DAYS BEFORE THE RISE of modern finance, some otherwisereputable economists, such as Adam Smith, Irving Fisher, John Maynard Keynes, and Harry Markowitz, thought that individual psychology affects prices.1 What if the creators of asset-pricing theory had followed this thread? Picture a school of sociologists at the University of Chicago proposing the Deficient Markets Hypothesis: that prices inaccurately ref lect all available information. A brilliant Stanford psychologist, call him Bill Blunte, invents the Deranged Anticipation and Perception Model ~or DAPM!, in which proxies for market misvaluation are used to predict security returns. Imagine the euphoria when researchers discovered that these mispricing proxies...
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...Research TOC BEHAVIORAL ECOLOGY, “SOCIOBIOLOGY,” AND HUMAN BEHAVIOR Bobbi S. Low W hen Juliet was twelve, her father, without consulting her, betrothed her to a man more than twice her age. She, being in love with Romeo, complained. Her father’s answer was (Act III, Scene V): An you will not wed, I’ll pardon you! Graze where you will, you shall not house with me; … An you be mine, I’ll give you to my friend; An you be not, hang, beg, starve, die in the streets, For, by my soul, I’ll ne’er acknowledge thee, Nor what is mine shall never do thee good. Today, in the United States, Juliet would probably sue her father for child abuse. And she would be likely to win. What is common, approved, and thought ethical varies widely across human cultures in time and space: whether one may marry more than one person at a time; who chooses marriage partners; whether abortion and infanticide are approved or forbidden; whether one may eat all meats, some meats, or none; what kinds of killings are forbidden or encouraged. How are we to make sense of all this variety? Human behavior has traditionally been the province of anthropology, sociology, and psychology. Within each of these fields there exist diverse approaches. Recently, behavioral ecology, an evolutionary approach to why we behave as we do, has joined other fields in trying to explain some of the diversity in human behavior. With its roots in Charles Darwin’s work 1 on natural selection, it examines how environmental conditions...
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...What is Foraging Behavior? According to our textbook, foraging behavior also known as feeding behavior involves locating and selecting food as well as gathering and capturing food. (1136). It also states that ecologist study the cost and benefits of searching for and selecting certain types of food as well as the mechanism used to locate prey. (1136). Foraging behaviors also have other characteristics such as optimal foraging and whether or not the species is considered a generalist or a specialist. Every animal uses its own attack strategy when it comes to foraging behavior and their prey have their own technique on how to Lessing there changes of being eaten. Our textbook defines optimal foraging as the most efficient way for an animal to obtain food. You would think that animals just eat whatever they see and what’s available but this hypothesis is absolutely wrong. According to Darrell Ray, an American Biology teacher human also go through a phase of optimal behavior. Darrell did an experiment with his general ecology class involving a plate of cookies and broccoli. In his experiment he polled how many students would choose a cookie over broccoli. At the end of his experiment he asked his students why did the majority pick cookies over broccoli. There response was because of the taste. Optimal foraging theory suggests a different answer, and it lies in the economic principle of profitability.” Fats and sugars do taste good, as the students noted, but...
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...Chapter 18 A SURVEY OF BEHAVIORAL FINANCE ° NICHOLAS BARBERIS University of Chicago RICHARD THALER University of Chicago Contents Abstract Keywords 1. Introduction 2. Limits to arbitrage 2.1. Market efficiency 2.2. Theory 2.3. Evidence 2.3.1. Twin shares 2.3.2. Index inclusions 2.3.3. Internet carve-outs 3. Psychology 3.1. Beliefs 3.2. Preferences 3.2.1. Prospect theory 3.2.2. Ambiguity aversion 4. Application: The aggregate stock market 4.1. The equity premium puzzle 4.1.1. Prospect theory 4.1.2. Ambiguity aversion 4.2. The volatility puzzle 4.2.1. Beliefs 4.2.2. Preferences 5. Application: The cross-section of average returns 5.1. Belief-based models 1054 1054 1055 1056 1056 1058 1061 1061 1063 1064 1065 1065 1069 1069 1074 1075 1078 1079 1082 1083 1084 1086 1087 1092 ° We are very grateful to Markus Brunnermeier, George Constantinides, Kent Daniel, Milt Harris, Ming Huang, Owen Lamont, Jay Ritter, Andrei Shleifer, Jeremy Stein and Tuomo Vuolteenaho for extensive comments. Handbook of the Economics of Finance, Edited by G.M. Constantinides, M. Harris and R. Stulz © 2003 Elsevier Science B.V All rights reserved . 1054 5.2. Belief-based models with institutional frictions 5.3. Preferences N. Barberis and R. Thaler 6. Application: Closed-end funds and comovement 6.1. Closed-end funds 6.2. Comovement 7. Application: Investor behavior 7.1. 7.2. 7.3. 7.4. 7.5. Insufficient diversification Naive diversification Excessive trading The selling decision...
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...Markets and Information Market Efficiency Overview So far we have considered a number of asset pricing models These have all required that price is a good reflection of value Is this likely to be the case? How? Why? Week 5 FINS5513 2 Today Trend and predictability Efficient market hypothesis Implications Supporting evidence Behavioural biases Barriers to the EMH Anomalies Can we build a fully efficient market? Week 5 FINS5513 3 Market Efficiency Efficiency in engineering: the best possible use of the inputs. An efficient market: investors make the best possible use of information. A useful initial perspective: As speculators we are trying to predict where a stock price will be in the future. Do we know anything today that will help us make this prediction? Week 5 FINS5513 4 Price of GE 104 102 100 98 96 94 92 90 88 0 Week 5 20 40 FINS5513 60 80 100 5 Are Prices Predictable? There are apparently short-run trends If we know we are at the start of a downward trend, sell short If we know we are at the start of an upward trend, buy How do you know when a trend is starting? ending? Can we devise rules (statistical or “technical”)? Week 5 FINS5513 6 Trend and Predictability The price path is simulated: Price(Today) = Price(Yesterday) + x, where x is a standard normal random variable This process...
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... animal behavior and recording single neuron activity. The key insight for economics is that the brain is composed of multiple systems which interact. Controlled systems (‘‘executive function’’) interrupt automatic ones. Brain evidence complicates standard assumptions about basic preference, to include homeostasis and other kinds of state-dependence, and shows emotional activation in ambiguous choice and strategic interaction. Keywords: Behavioral economics; neuroscience; neuroeconomics; brain imaging JEL classification: C91; D81 I. Introduction In a strict sense, all economic activity must involve the human brain. Yet, economics has achieved much success with a program that sidestepped the * We thank participants at the Russell Sage Foundation-sponsored conference on Neurobehavioral Economics (May 1997) at Carnegie-Mellon, the Princeton workshop on Neural Economics (December 2000) and the Arizona conference (March 2001). This research was supported by NSF grant SBR-9601236 and by the Center for Advanced Study in Behavioral Sciences, where the authors visited during 1997–1998. David Laibson’s presentation at the Princeton conference was particularly helpful, as were comments and suggestions from referees, John Dickhaut, Paul Zak, a paper by Jen Shang, and...
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...Libre des Sciences Commerciales Appliquées Review of Literature Behavioral Finance Presented to Dr. Mohamed EL-Hennawy Group Assignment Prepared By Albert Naguib Noha Samir Wael Shams EL-Din Moshira Gamil Marie Zarif January 2012 | TABLE OF CONTENTS | | | |List of Table………………………………………………………………………….. | |List of Figure ………………………………………………………………………… | |List of Abbreviations/Acronyms ……………………………………………………. | |Introduction……………………………………………………………………….. | |2. Appearance of Behavioral Finance…………………………………………………… | |2.1. Important Contributors…………………………………………………. ………. | |3. Behavioral Biases…………………………………………………………………… ...
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...Behavioural Finance Security Analysis and Portfolio Management Behavioural Finance This is referred as a field of study that combines behavioural and cognitive psychological theory with conventional economics and finance to explain why people tend to behave in unpredictable and irrational manner. It tries to explain how investors often tend to differ from the traditional and rational economic assumptions because misrepresentation, over-confidence, biases aversion to ambiguity etc. Prospect Theory This theory states that investors pay attention to change in each transaction than the total value and have a tendency to get more distressed by the prospective losses than the happiness from prospective gains in an investment. 1. Frame Dependence: Example: 2. Mental Accounting: It explains how current and future assets are divided into different groups and therefore differently treated which explains the change in their investment decision and behaviour. Example: If given an option to buy either a piece of land at Rs.1000000 and save Rs.50000 on the deal or a car at Rs.500000 and save Rs.50000, most people will buy the car. Even though the savings is the same in both the cases, the amount saved on car is a more powerful motivator than the savings on the piece of land. 3. House money effect: This effect was given by Thaler and Johnson. Example: A set of twenty investors are given Rs.25000 and given a chance to toss where they either win Rs.10000 or lose...
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...ABSTRACT Behavioural finance is part of finance that seeks to understand and explain the systematic financial market implications of psychological decision processes. It utilizes knowledge of cognitive psychology, social sciences and anthropology to explain irrational investor behavior that is not being captured by the traditional rational based models. INTRODUCTION Classical investment theories are based on the assumption that investors always act in a manner that maximizes their return. Yet a number of research show that investors are not always so rational. Human become puzzled when the uncertainty regarding investment decision engulfs them. People are not always rational and markets are not always efficient. Behavioral finance explains why individual do not always make the decisions they are expected to make and why markets do not reliably behave as they are expected to behave. Recent research shows that the average investors make decisions based on emotion, not logic; most investor’s buy high on speculations and sale low on panic mood. Psychological studies reveal that the pain of losing money from investment is really three times greater than the joy of earning money. Emotions such as fear and greed often play a pivotal role in investor’s decision; there are also other causes of irrational behavior. It is observed that stock price moves up and down on a daily basis without any change in fundamental of economies. It is also observed that people in the stock market...
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