FIN 614: Financial Management Larry Schrenk, Instructor.

Slides:

Advertisements

Similar presentations

1 Behavioural Slides 2007 Behavioral Corporate Finance.

Advertisements

Biases, Brains, and Decision Making. Lawyers are Lousy Decision-Makers.

Psyc 235: Introduction to Statistics DON’T FORGET TO SIGN IN FOR CREDIT!

Day 2 Evolution of Decision-Making.  Tversky and Kahneman, 1974  Heuristics – general rules of thumb, or habits  Generally result in decent estimates.

Behavioral Finance Alok Kumar Yale School of Management 8 December 1999.

1 Intuitive Irrationality: Reasons for Unreason. 2 Epistemology Branch of philosophy focused on how people acquire knowledge about the world Descriptive.

Psychology and Behavioral Finance Fin254f: Spring 2010 Lecture notes 3 Readings: Shiller 8-9, Nofsinger, 1-5.

9-1 Behavioral Finance Materials collected from: Fundamental of Corporate Finance by Ross, Westfield and Jordan Essentials of Investment by Bodie, Kane.

Risk Thomas Lumley Department of Statistics University of Auckland.

Misconceptions and Fallacies Concerning Probability Assessments.

1 st lecture Probabilities and Prospect Theory. Probabilities In a text over 10 standard novel-pages, how many 7-letter words are of the form: 1._ _ _.

© POSbase 2005 The Conjunction Fallacy Please read the following scenario: (by Tversky & Kahneman, 1983)Tversky & Kahneman, 1983 Linda is 31 years old,

Fallacies in Probability Judgment Yuval Shahar M.D., Ph.D. Judgment and Decision Making in Information Systems.

D ECISION M AKING

Elicitation & Elucidation of Risk Preferences Working Party 2005 CAS Annual Meeting Session C 21 Parr Schoolman / David Ruhm.

Thinking, Deciding and Problem Solving

Reasoning What is the difference between deductive and inductive reasoning? What are heuristics, and how do we use them? How do we reason about categories?

Judgment in Managerial Decision Making 8e Chapter 3 Common Biases

Running Experiments with Amazon Mechanical-Turk Gabriele Paolacci, Jesse Chandler, Jesse Chandler Judgment and Decision Making, Vol. 5, No. 5, August 2010.

+ Cognition. + Cognition: Thinking All the mental activities associated with thinking, knowing, remembering, and communicating.

Stat 321 – Day 11 Review. Announcements Exam Thursday  Review sheet on web  Review problems and solutions on web  Covering chapters 1, 2; HW 1-3; Lab.

Heuristics and Biases. Normative Model Bayes rule tells you how you should reason with probabilities – it is a normative model But do people reason like.

The Psychology of Security ….a work in progress Bruce Schneier DIMACS Workshop on Information Security Economics Rutgers University 18 January 2007.

Example #1 (Bransford & Johnson, 1973)  “The procedure is quite simple. First, you arrange things into different groups. Of course, one pile may be sufficient,

A Survey of Behavioral Finance

Heuristics & Biases. Bayes Rule Prior Beliefs Evidence Posterior Probability.

Asset Management Lecture 19. Agenda Behavioral finance (Chapter 12) Challenges to market efficiency Limits to arbitrage Irrational investors.

Decision Making. Test Yourself: Decision Making and the Availability Heuristic 1) Which is a more likely cause of death in the United States: being killed.

Varieties of Intelligence Evidence from Brain Damage and Cases of Unusual Development An Ecological Perspective on Intelligence.

Today’s Topic Do you believe in free will? Why or why not?

Good thinking or gut feeling

Experience Schulich 2010 Mini-lecture: Finance. S As Far as Investors were concerned… the last decade was a miss!

Pauline Shum Schulich School of Business York University

PSY241 Heuristics Tom Stafford

Psychology 100 Chapter 8 Part III Thinking & Intelligence.

+ Cognition. + Cognition: Thinking All the mental activities associated with thinking, knowing, remembering, and communicating.

Protected Values and Heuristics and Biases Approach Rumen Iliev and Douglas Medin Northwestern University Abstract Protected values, which are values resisting.

Lecture 15 – Decision making 1 Decision making occurs when you have several alternatives and you choose among them. There are two characteristics of good.

Wrap Up Psychological assumptions… Permeate the social sciences Rational view Behavioral view Biased judgment Malleable preferences Influenced.

LESSON TWO ECONOMIC RATIONALITY Subtopic 10 – Statistical Reasoning Created by The North Carolina School of Science and Math forThe North Carolina School.

Judgement Judgement We change our opinion of the likelihood of something in light of new information. Example:  Do you think.

BEHAVIORAL FINANCE.

Exercise 2-6: Ecological fallacy. Exercise 2-7: Regression artefact: Lord’s paradox.

Representativeness Heuristic Then: Framing Effects Psychology 355: Cognitive Psychology Instructor: John Miyamoto 6/2 /2015: Lecture 10-2 This Powerpoint.

5 MARCH 2015 TOK LECTURE TRUTH: TNML. ECONOMICS  ECONOMISTS HAVE A VERY SHAKY RELATIONSHIP WITH TRUTH.  AT THE HEART OF THE FINANCIAL CRISIS OF 2008.

Inductive reasoning problems … … … … ?? ?? 1210 Need.

CHS AP Psychology Unit 7 Part II: Cognition Essential Task 7.3: Identify decision making techniques (compensatory models, representativeness heuristics,

FIN 437 Vicentiu Covrig 1 Behavioral Finance Behavioral Finance (see chapters 1 and 4 from Shefrin)

Probability Judgments: Overview I  Heuristics and Basis:  Availabilty heuristic  Representativeness heuristic.  Anchoring and Adjustment.

Inductive reasoning problems … … … … ?? ?? 1210 Need.

A. Judgment Heuristics Definition: Rule of thumb; quick decision guide When are heuristics used? - When making intuitive judgments about relative likelihoods.

Heuristics and Biases Thomas R. Stewart, Ph.D. Center for Policy Research Rockefeller College of Public Affairs and Policy University at Albany State University.

The Representativeness Heuristic then: Risk Attitude and Framing Effects Psychology 355: Cognitive Psychology Instructor: John Miyamoto 6/1/2016: Lecture.

Exercise 2-7: Regression artefact: Lord’s paradox

Unit 7 Part II: Cognition

Behavioral Finance.

PSY 323 – Cognition Chapter 13: Judgment, Decisions & Reasoning.

Skepticism and Empiricism in Psychology

Pavle Valerjev Marin Dujmović

1st: Representativeness Heuristic and Conjunction Errors 2nd: Risk Attitude and Framing Effects Psychology 355:

These slides are preview slides

FIN 377: Investments Topic 10: Behavioral Finance and Technical Analysis Larry Schrenk, Instructor.

Psychology of Security

Cognition and Language

Conceptions and Misconceptions

Animal Learning.

FIN 360: Corporate Finance

Animal Learning.

For Thursday, read Wedgwood

Presentation transcript:

FIN 614: Financial Management Larry Schrenk, Instructor

1.What is Behavioral Finance? 2.Behavioral vs. Traditional Finance 3.Prospect Theory 4.Biases and Heuristics

Finance and Psychology Cognitive Errors in Financial Decision- Making Questions EMH Connections to Evolutionary Psychology and Neuroscience

Traditional Rational Expected Utility EMH Behavioral Bounded Rationality Prospect Theory Market Imperfections

Preference for Certainty Loss Aversion ‘Relative’ Evaluation

Overconfidence/Optimism Representativeness Anchoring Availability Framing Statistical Problems

Explanation 90% of Drivers Claim above Average Skill 99% of Freshman Claim Superior Intelligence Illusion of Control Financial Effects and Implications Excessive Trading Capital Budgeting

Explanation Base Rates Under-Utilized Sample Size Neglect Financial Effects and Implications Excessive Extrapolation Small Sample as Representative of Population

Explanation Initial Arbitrary Value Attila the Hun Experiment Financial Effects and Implications Benchmarks

Explanation Recent Issues Salient Issues Financial Effects and Implications Over-Reaction to News

Explanation Frame-Dependent Decisions ‘Asian Disease’ Experiment Financial Effects and Implications Effects of Frames on Financial Decisions

Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice and she participated in anti-nuclear demonstrations. Which of the following statements are more probable? A. Linda is active in the feminist movement. B. Linda is a bank teller. C. Linda is a bank teller and is active in the feminist movement.

FIN 614: Financial Management Larry Schrenk, Instructor