...to but just as the saying goes. Keep your friends close but enemies closer. Fast-growing understanding of the human genome has made it clear that both sides of the debate have merit. Nature endows us with inborn abilities and traits; nurture takes these genetic tendencies and molds them as we learn and mature. That’s it, right? Ha! The "nature vs nurture" debate still rages on, as scientist fight over how much of who we are is shaped by genes and how much by the environment. The nurture theory holds that genetic influence over abstract traits may exist; however, the environmental factors are the real origins of our behavior. This includes the use of conditioning in order to induce a new behavior to a child, or alter an unlikely behavior being shown by the child. According to John Watson, one of the strongest psychologists who...
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...An entrepreneur is more susceptible to the use decision making biases and heuristics than are managers in large organizations (Schade, 2007). To understand why entrepreneurs and managers in large organizations may vary in the extent to which they manifest biases and heuristics in their decision making, it is important to understand the utility of nonrational decision making (Schade, 2007). Under conditions of environmental uncertainty and complexity, biases and heuristics can be an effective and efficient guide to decision making (Schade, 2007). In such settings, more comprehensive and cautious decision making is not possible, and biases and heuristics may provide an effective way to approximate the appropriate decisions (Schade, 2007). The use of heuristics has also been found to be associated with innovativeness (Schade, 2007). Perhaps a critical difference between these sets of individuals is the extent to which they manifest biases and heuristics in their decision making (Schade, 2007). There are several traits and demographic factors, enduring support was found for the way entrepreneurs make decisions (Schade, 2007). We speculate that without the use of biases and heuristics, many entrepreneurial decisions would never be made (Schade, 2007). With entrepreneurial ventures in particular, the window of opportunity would often be gone by the time all the necessary information became available for more rational decision making (Schade, 2007).Additionally, successfully starting...
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...Behavioral Finance By Albert Phung http://www.investopedia.com/university/behavioral_finance/default.asp Thank-you very much for downloading the printable version of this tutorial. As always, we welcome any feedback or suggestions. http://www.investopedia.com/contact.aspx Table of Contents 1) Behavioral Finance: Introduction 2) Behavioral Finance: Background 3) Behavioral Finance: Anomalies 4) Behavioral Finance: Key Concepts - Anchoring 5) Behavioral Finance: Key Concepts - Mental Accounting 6) Behavioral Finance: Key Concepts - Confirmation and Hindsight Bias 7) Behavioral Finance: Key Concepts - Gambler's Fallacy 8) Behavioral Finance: Key Concepts - Herd Behavior 9) Behavioral Finance: Key Concepts - Overconfidence 10) Behavioral Finance: Key Concepts - Overreactions and Availability Bias 11) Behavioral Finance: Key Concepts - Prospect Theory 12) Behavioral Finance: Conclusion Introduction According to conventional financial theory, the world and its participants are, for the most part, rational "wealth maximizers". However, there are many instances where emotion and psychology influence our decisions, causing us to behave in unpredictable or irrational ways. Behavioral finance is a relatively new field that seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions. By the end of this tutorial, we hope that you'll have a better understanding of some...
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...journal homepage: www.elsevier.com/locate/jebo Cognitive abilities and behavioral biases Jörg Oechssler a,∗ , Andreas Roider a , Patrick W. Schmitz b a b Department of Economics, University of Heidelberg, Bergheimer Str. 58, 69115 Heidelberg, Germany Department of Economics, University of Cologne, Germany a r t i c l e i n f o a b s t r a c t We use a simple, three-item test for cognitive abilities to investigate whether established behavioral biases that play a prominent role in behavioral economics and finance are related to cognitive abilities. We find that higher test scores on the cognitive reflection test of Frederick [Frederick, S., 2005. Cognitive reflection and decision-making. Journal of Economic Perspectives 19, 25–42] indeed are correlated with lower incidences of the conjunction fallacy and conservatism in updating probabilities. Test scores are also significantly related to subjects’ time and risk preferences. Test scores have no influence on the amount of anchoring, although there is evidence of anchoring among all subjects. Even if incidences of most biases are lower for people with higher cognitive abilities, they still remain substantial. © 2009 Elsevier B.V. All rights reserved. Article history: Received 19 May 2008 Received in revised form 15 April 2009 Accepted 15 April 2009 Available online 13 May 2009 JEL classification: C91 D80 D90 J24 Keywords: Behavioral finance Biases Cognitive abilities Cognitive reflection test 1. Introduction Why should...
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... | |List of Figure ………………………………………………………………………… | |List of Abbreviations/Acronyms ……………………………………………………. | |Introduction……………………………………………………………………….. | |2. Appearance of Behavioral Finance…………………………………………………… | |2.1. Important Contributors…………………………………………………. ………. | |3. Behavioral Biases…………………………………………………………………… | |3.1. Self Deception………………………………………………………………….. | |3.1.1. Over-Optimism………………………………………………………… | |3.1.2....
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...Cognitive behavioral therapy (CBT) is a psychotherapeutic approach that addresses dysfunctional emotions, maladaptive behaviors and cognitive processes and contents through a number of goal-oriented, explicit systematic procedures. The name refers to behavior therapy, cognitive therapy, and to therapy based upon a combination of basic behavioral and cognitive principles and research. CBT is thought to be effective for the treatment of a variety of conditions, including mood, anxiety, personality, eating, substance abuse, tic, and psychotic disorders. Many CBT treatment programs for specific disorders have been evaluated for efficacy; the health-care trend of evidence-based treatment, where specific treatments for symptom-based diagnoses are recommended, has favored CBT over other approaches such as psychodynamic treatments.[1] CBT was primarily developed through an integration of behavior therapy (the term "behavior modification" appears to have been first used by Edward Thorndike) with cognitive psychology research, first by Donald Meichenbaum and several other authors with the label of cognitive-behavior modification in the late 1970s. This tradition thereafter merged with earlier work of a few clinicians, labeled as Cognitive Therapy (CT), developed by Aaron Beck, and Rational Emotive Therapy (RET) developed by Albert Ellis. While rooted in rather different theories, these two traditions have been characterized by a constant reference to experimental research to test hypotheses...
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...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 ~such * Hirshleifer is from the Fisher College of Business, The Ohio State University. This survey was written...
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...are also grateful for all valuable comments and insights from our fellow students during seminar sessions. We would also like to present a special thanks to Johan Sandberg at Swedbank Robur and Viktor Östebo at Nordnet. 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...
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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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...Theories of Counseling • Gerald Corey’s Perspective of Theories of Counseling: • No single model can explain all the facets of human experience o Eleven approaches to counseling and psychotherapy are discussed • Your textbook book assumes: o Students can begin to acquire a counseling style tailored to their own personality ▪ The process will take years ▪ Different theories are not “right” or “wrong” ▪ The Effective Counselor from the perspective of Gerald Corey • The most important instrument you have is YOU ▪ Your living example of who you are and how you struggle to live up to your potential is powerful • Be authentic ▪ The stereotyped, professional role can be shed ▪ If you hide behind your role the client will also hide • Be a therapeutic person and be clear about who you are ▪ Be willing to grow, to risk, to care, and to be involved Counseling for the Counselor...
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...market efficiency causes existing share prices to always incorporate and reflect all relevant information. Thus, according to the EMH, it is impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices because stocks are always traded at their fair value on stock exchanges. Another reason is because no one has access to information that is not already available to everyone else. One important characteristic of the EMH is its assumption that agents are rational. Rational agents is agents which has a clear preferences, models uncertainty via expected values, and always chooses to perform the action that results in the optimal outcome from all the feasible actions. Their actions depend on their preferences, their information of the current situation; which may come from past experiences, the actions, duties and obligations available and the estimated or actual benefits that the agents can get after the actions. In reality, however, agents are not always rational; people’s decision does not always correspond to the concept of economic rationality. Most people, in fact, make their decision rather intuitively. This leads to an interesting new study of behavioural finance, a study that linked psychology with finance. It provides explanations to well-known market anomalies such as: the small firms outperform; in which the case...
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...Contents Introduction Part I. Two Systems 1. The Characters of the Story 2. Attention and Effort 3. The Lazy Controller 4. The Associative Machine 5. Cognitive Ease 6. Norms, Surprises, and Causes 7. A Machine for Jumping to Conclusions 8. How Judgments Happen 9. Answering an Easier Question Part II. Heuristics and Biases 10. The Law of Small Numbers 11. Anchors 12. The Science of Availability 13. Availability, Emotion, and Risk 14. Tom W’s Specialty 15. Linda: Less is More 16. Causes Trump Statistics 17. Regression to the Mean 18. Taming Intuitive Predictions Part III. Overconfidence 19. The Illusion of Understanding 20. The Illusion of Validity 21. Intuitions Vs. Formulas 22. Expert Intuition: When Can We Trust It? 23. The Outside View 24. The Engine of Capitalism Part IV. Choices 25. Bernoulli’s Errors 26. Prospect Theory 27. The Endowment Effect 28. Bad Events 29. The Fourfold Pattern 30. Rare Events 31. Risk Policies 32. Keeping Score 33. Reversals 34. Frames and Reality Part V. Two Selves 35. Two Selves 36. Life as a Story 37. Experienced Well-Being 38. Thinking About Life Conclusions Appendix Uncertainty A: Judgment Under Appendix B: Choices, Values, and Frames Acknowledgments Notes Index Introduction Every author, I suppose, has in mind a setting in which readers of his or her work could benefit from having read it. Mine is the proverbial office watercooler, where opinions are shared and gossip is exchanged. I hope to enrich the vocabulary that...
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...but yields net societal benefits. A good example is taxation to fund public goods such as roads. In such situations, an individual would be better off if she alone were exempt from the tax; she benefits when everyone (including herself) must pay the tax. In this paper, we are concerned with a third form of regulation: paternalistic regulations that are designed to help on an individual basis. Paternalism treads on consumer sovereignty by forcing, or preventing, choices for the individual’s own good, much as when parents limit their child’s freedom to skip school or eat candy for dinner. Recent research in behavioral economics has identified a variety of decision-making errors that may expand the scope of paternalistic regula- Professor Camerer is the Rea and Lela Axline Professor of Business Economics, California Institute of Technology; Professor Issacharoff is the Harold R. Medina Professor of Procedural Jurisprudence, Columbia Law School; Professor Loewenstein is a Professor of Economics and Psychology, Carnegie Mellon University; Ted O’Donoghue is an Assistant Professor of Economics, Cornell University; and Professor Rabin is a Professor of Economics, University of California at Berkeley. Our thanks to participants at the University of Pennsylvania Law School Symposium on Preferences and Rational Choice, the University of Southern California Olin Workshop, the Columbia Law School faculty...
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...Student’s name: Nguyen Duy Quang DOB: 14/08/1992 ID: 121401134 Class: 12BOBA04 Lecturer’s name: Ms. Khanh Learning Centre: HO CHI MINH UNIVERSITY OF TECHNOLOGY Date of Submission: 1 November 2013 Words: 2,867 Question 1 1. Introduction According to Ennis (1985), “Critical thinking is reasonably and reflectively deciding what to believe or do". Critical thinking is "the art of thinking about your thinking while you are thinking in order to make your thinking better: more clear, more accurate, or more defensible", Paul, Binker, Adamson, and Martin (1989). Critical thinking is best understood as the ability of thinkers to take charge of their own thinking. This requires that they develop sound criteria and standards for analyzing and assessing their own thinking and routinely use those criteria and standards to improve its quality. According to Michael, "Critical thinking is the intellectually disciplined process of actively and skillfully conceptualizing, applying, analyzing, synthesizing, and/or evaluating information gathered from, or generated by, observation, experience, reflection, reasoning, or communication, as a guide to belief and action. In its exemplary form, it is based on universal intellectual values that transcend subject matter divisions: clarity, accuracy, precision, consistency, relevance, sound evidence, good reasons, depth, breadth, and fairness”. Benefits of critical thinking The quality of our life and that of what we produce depends...
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...INTRODUCTION Company profile NS Plastic & Metal Trading Sdn Bhd (933699-P) is a locally incorporated company under the companies act 1965 section 16(4) of the Malaysian Law. NS Plastic & Metal Trading Sdn Bhd (933699-P) was established in 24th February 2011 but NS Plastic & Metal Trading (001317810-P) was established in 2nd of October 2001 in response to high growing demand for recycling industry needs and the wholesale market for industrial waste products. They have developed strategic alliance with leading suppliers and buyers and gone through intensive industrial research. NS Plastic & Metal Trading Sdn Bhd understand the industrial needs for proper waste disposal and with the acquired knowledge from local industrial attachment; they are confident and able to meet customer needs. NS Plastic & Metal Trading Sdn Bhd (933699-P) is fully committed in recycling plastic wastes into resins. Resins are used to manufacture plastic bags, household bags, plantation poly bags, agriculture bags, construction layers and etc.Their current facilities which are located strategically in the new Seremban Selatan Industry Area is adequate to facilitate the growing and challenging recycling industry for this new millennium. About The Company NS PLASTIC & METAL TRADING SDN BHD ( 933699-P), is situated in a very strategic location in Bandar Seremban Selatan Industrial Area. The location at Lot 23138,Jalan BBS 1/2 ,Kawasan Perindustrian, Bandar Seremban Selatan, 71450...
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