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Literature Review(Summary of Three Papers)

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Behavioural Finance Literature Review

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ABSTRACT
INTRODUCTION
It is tough today to avoid the concept of behavioural finance in the day to day operations of the modern day’s business. All over the world Governments are in a process of experimenting the application of the psychology of decision making to tune their citizens towards better behaviours. Companies and institutions are paying attention to this concept as a new opportunity of realizing profits.
Traditionally, the finance paradigms relied heavily on understanding finance markets using the models that had agents who were rational. In the Scenario, rationality implied that when the companies received new information, they updated their agents believes as described by the Bayes law. Besides, with their beliefs, managers and agents made decisions that are acceptable because they are consistent with the Savage idea of Subjective Expected Utility. This traditional approach was viewed as successful if it received data backing. However, as markets became complicated, it became clear that basic acts involving the stock market, the average returns and peoples trading behaviours could not be comprehended in the traditional model. The behavioural finance is the new approach to the emerging financial markets as it addressed the challenges faced by the traditional paradigms. The basic argument of this paradigm is that some financial phenomena can be best can be best comprehended by the use of the models in which some agents do not have the full rational status. Furthermore, behavioural finance analyses the end results of relaxing one or both tenets that are applicable in individual’s rationality.
This paper will be based on the research by Massey and Wu (2005), it will use their approaches in the insurance scenario where the two different Domains to imitate the

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