...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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...Richard L. Graham PSY 352 – Health Psychology June 20, 2015 Instructor Bill Plath Biopsychosocial vs. Biomedical Model Essay The most effective way to understand biopsychosocial model of health and biomedical model of health is to compare and contrast the two model. With biomedical model there are some benefits that are remarkably positive for the studying of diseases. Biomedical is a model in which it has the ability to be reductionistic, meaning that it plays a role reducing illness to a lower level. Whereas the biopsychosocial model maintains the factor of biological, psychological coupling social factors in of health and illness it also focuses while emphasizing extensively on health and illness as a deviation. Even though medical practitioners focus more on diagnosis and treatment, this essay will provide a compared and contrasted evidence between biopsychosocial model of health and biomedical model of health, making it easier to understand the advantages of the biopsychosocial model while revealing of the model which is most ready to used in researches and studies. The concept of mind and body in compilation makes up health and illness, so here a model has to be determined for the study of these issues, biopsychosocial model would be the model implemented for the logic of health and illness. In accordance to: Suls, J (2004) "Biopsychosocial is the foundational assumption, health and illness are consequences of the inter-play of biological, psychological, and social...
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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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...Technical analysis involves identifying crowd behavior in order to join the crowd and take advantage of its momentum and direction. This is called the bandwagon effect. Here’s how a bandwagon works: A fresh piece of news comes out, a majority of traders interpret it as favorable to a security, and buying overwhelms selling so that the price rises. You profit by going with the flow. Then when everyone is jumping off the bandwagon, you jump, too. As market participants get excited about a security, they become increasingly bullish and either buy for the first time or add to positions, a phase namedenamed accumulation. When traders become disillusioned about the prospect of their security price rising, they sell, in a phase named distribution. To buy 100 shares of a stock is to enter a position. To buy another 100 shares for a total of 200 is toadd to your position. If you have 500 shares and sell half, you would be reducing your position. To sell all the shares you own is to square your position. When you’re square (also called flat), you have no position in the security. All your money is in cash. You’re neutral. After traders have been accumulating the security on rising prices, eventually the price goes too far.Too far is a relative term and can be defined in any number of equally valid ways, but basically it means any price extreme that’s wildly abnormal, statistically speaking. When a price has reached or surpassed a normal limit, it’s at an extreme....
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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 book that I chose for this book review is Thinking Fast and Slow by Daniel Kahneman. He is an Israeli-American psychologist and winner of the 2002 Nobel Prize in Economic Sciences. He is notable for his work on the psychology of judgment and decision-making, behavioral economics and hedonic psychology. The main thesis of the book is quite simple. When judging the world around us, we use two mental systems: Fast and Slow. The Fast system (System 1) is mostly unconscious and makes snap judgments based on our past experiences and emotions. When we use this system we are as likely to be wrong as we are to be right. The Slow system (System 2) is more rational, conscious and slow. They work together to provide us with a view of the world around us. Together, they shape our impressions of the world around us and help us make choices. System 1 is largely unconscious and it makes snap judgments based upon our memory of similar events and our emotions. System 2 is painfully slow, and is the process by which we consciously check the facts and think carefully and rationally. Problem is, System 2 is easily distracted and hard to engage, and System 1 is wrong as often as it is right. System 1 is easily swayed by our emotions. Some examples he cites include the fact that pro golfers are more accurate when putting for par than they are for birdie, regardless of distance, and people buy more cans of soup when there's a sign on the display that says "Limit 12 per customer." An easier way...
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...Concept Academic research results What it means for us Disposition Effect Shefrin and Statman (1985) predicted that because people dislike incurring losses much more than they enjoy making gains (risk aversion), and people are willing to gamble in the domain of losses, investors will hold onto stocks that have lost value (relative to the reference point of their purchase) and will be eager to sell stocks that have risen in value. They called this the disposition effect. People will hold losing positions hoping that they can close them later at break-even or better. This is how support and resistance are born! Representa-tiveness Heuristic People tend to make judgments in uncertain situations by looking for familiar patterns and assuming that future patterns will resemble past ones, often without sufficient consideration of the reasons for the pattern or the probability of the pattern repeating itself. This anomaly of human judgment, called the representative-ness heuristic, was demonstrated in a number of experiments by psychologists Tversky and Kahneman. Related concept: Overconfidence - people place too much confidence in their own judgement (e.g. thinking they know the “truth” from observing one pattern 3 times), although it is not validated. • Key reason why people use Technical Analysis, and through self-fulfulling prophecy, it becomes relevant • People get used to current market behavior, and through their actions support its continuation leads to stable market regimes ...
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...Behavioural Finance Martin Sewell University of Cambridge February 2007 (revised April 2010) Abstract An introduction to behavioural finance, including a review of the major works and a summary of important heuristics. 1 Introduction Behavioural finance is the study of the influence of psychology on the behaviour of financial practitioners and the subsequent effect on markets. Behavioural finance is of interest because it helps explain why and how markets might be inefficient. For more information on behavioural finance, see Sewell (2001). 2 History Back in 1896, Gustave le Bon wrote The Crowd: A Study of the Popular Mind, one of the greatest and most influential books of social psychology ever written (le Bon 1896). Selden (1912) wrote Psychology of the Stock Market. He based the book ‘upon the belief that the movements of prices on the exchanges are dependent to a very considerable degree on the mental attitude of the investing and trading public’. In 1956 the US psychologist Leon Festinger introduced a new concept in social psychology: the theory of cognitive dissonance (Festinger, Riecken and Schachter 1956). When two simultaneously held cognitions are inconsistent, this will produce a state of cognitive dissonance. Because the experience of dissonance is unpleasant, the person will strive to reduce it by changing their beliefs. Pratt (1964) considers utility functions, risk aversion and also risks considered as a proportion of total assets...
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...Dan Ariely’s evaluation of human behavior in Predictably Irrationality is essentially eccentric especially to the science reader who is trained in a world of testable explanations, logical reproducible results and predictions. We prefer to believe we are logical beings, responsible for our actions and deserve to rip the credit for every success. Then enters behavioral economics. Humans are rational beings, but not predictably. Ariely begins by affirming that humans think in relative measures. It is much easier to compare and contrast alternatives, which are familiar to us. The first chapter on relativity aptly shows limitations in judgment when faced with similar alternatives and the effect of a decoy. It seems his experiments suggest it is easier and more compelling for humans to compare 2 things, to keep a narrow focus and deliberately block out cofounding factors or scenarios. From his conclusions I learnt it is crucial to keep decision options simple, identify decoys and be able to introduce or break the cycle of relativity depending on your objective. The concept of supply and demand is fundamental in economics and remains the backbone of a market economy. However goods of ostentation as shown by the example of the pearl used by Dan Ariely defy this concept. He however goes further to show that “anchors” could be used to attribute any price to about anything. I contend that in developing economies, where a larger part of the market is still trapped at the bottom of...
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...Chapter 9 Behavioral Finance and Technical Analysis The effiecient market hypothesis makes two important predictions. First, it implies that security prices properly reflect whatever information is available to investors. Second, active traders will find it difficult to outperform passive strategies such as holding market indexes. A relatively new school of thought dubbed behavioral finance argues that sprawling literature on trading strategies has missed a larger and more important point by overlooking the first implication of efficient markets-the correctness of security prices. Behavioral finance are models that emphasize potential implications of psychological factors affecting investor behavior. Its premise is that conventional financial theory ignores how real people make decisions and that people make a difference. A growing number of economists have come to interpret the anomalies literature as consistent with several “irrationalities” that seem to characterize individuals making complicated decisions. 2 Broad Categories: 1. Investors do not always process information correctly and therefore infer incorrect probability distributions about furture rates of return. 2. Even given a probability distribution of returns, they often make inconsistent or systematically suboptimal decisions. Information Processing Errors in information processing can lead investors to misestimate the true probabilities of possible events or associated rates of return. Forecasting errors...
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