...Essay of ”Prospect House” Life can be harsh, but it isn’t always your social background and social conditions which defines who you are and who you are going to be. As a known English idiom says, “He who would climb the ladder must begin at the bottom”. Despite the fact that some people live at “the bottom”, they can still follow their dreams and change their destiny, but it can be a very long, painful and confusing process, which demands a strong and determined individual, who is willing to work hard and keep on fighting for his dream. This is some of the characteristics we can recognize in the protagonist of the short story Prospect House by Frances Childs. We follow the Londoner Kim in her struggle to actualize her dream of becoming an actress. In Prospect House we see the story unfolding through Kim’s eyes and the story is told from her point of view. As a result of the story being told in first person, we can quite easily relate to Kim and thus we almost immediately sympathize with her, because we know her feelings and thoughts. We soon become aware of Kim’s unfavorable background. She doesn’t live with her family if she even has one. She lives at the Prospect House in Winchester, a home for single teenage girls and we get the feeling that she suffers from parental neglect. In lines 38-42 she describes their project worker, Linda, as a mother figure: “(…) Linda is a large, matronly middle-aged lady and comes round in the morning and shouts at us to get out of...
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...An Essay on the Short Story P rospect House This English short story, which was published in Harlot Red in 2002 , has been adapted from a short story by Frances Childs . The story deals with the themes of friendship and love. Love is very fundamental, if you want to be happy. Right from our birth our parents love us, which is a love that lasts no matter what happens. Also it is necessary to have a girl- or boyfriends who shows affection and care for you and besides that the love from friends is very important in order to have a good life. The main character called experiences love through her friends, but she doesn’t have a boyfriend or parents, who take care of her. Frances Childs makes use of a first-person narrator and thus the story is told from Kimpoint of view. As readers we soon become aware of Kim’s r background and we learn that she has an unhealthy relationship with love. She doesn’t even remember the name of the boy, with whom she has slept and who transmitted her with Hep B and a venereal disease. This also shows us that she doesn’t take care of herself. The other girls in the Prospect House don’t take care of themselves either. They give birth just because they want somebody to love them and Di gets pregnant just to get out of Prospect house and not because she really wants a child. Probably Kim has gn up without caring parents and this has made her life hard. “ I know that I am that girl, motherless, seething with desire, pushed into a world that...
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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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...Do Professional Traders Exhibit Loss Realization Aversion? Peter R. Locke * The George Washington University Steven C. Mann ** Texas Christian University November 2000 * Finance Department, School of Business and Public Management, The George Washington University, Washington DC, 20052. plocke@gwu.edu, (202) 994-3669. ** M.J. Neeley School of Business, Texas Christian University. Fort Worth, Texas 76129 S.mann@tcu.edu ; (817) 257-7569. We wish to thank Peter Alonzi, Chris Barry, Rob Battalio, Gerald P. Dwyer, Avner Kalay, Paul Laux, Paula Tkac, Steve Manaster, Arthur Warga, and seminar participants at the 1998 FMA meetings, the 1999 Chicago Board of Trade Spring Research seminar, the 1999 Western Finance meetings, the 1999 Southern Finance meetings, the Commodity Futures Trading Commission, TCU, University of Texas at Dallas, and the First Annual Texas Finance Festival for discussions and comments helpful to the evolution of the paper. Pattarake Sarajoti provided valuable assistance. Mann acknowledges the support of the Charles Tandy American Enterprise Center. A good portion of this work was completed while Locke was on the staff of the U.S. Commodity Futures Trading Commission. However, the views expressed are the authors’ only and do not purport to represent the views of the Commodity Futures Trading Commission or its staff. Do Professional Traders Exhibit Loss Realization Aversion? Abstract Recent evidence (e.g. Odean, 1998a) describes investor behavior...
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...rational observer, armed with all available information, would forecast a low long-term return on the asset (Barberis, 2010). 4.3 Two categories of theories explaining “Bubble Formation” (Why an asset class might become overvalued): 1. “Investor Beliefs Based” theories; 2. “Investor Preferences Based” theories; 4.4 Three “Belief-Based” theories of “Bubble Formation” (Barberis, 2010): First theory argues that a bubble forms when investors disagree sharply about an asset’s future prospects and there are short-sale constraints. Second theory argues that bubbles arise because investors extrapolate past outcomes – returns, earnings growth, or default rates – too far into the future. Third theory is based on overconfidence – specifically, on the idea that people overestimate the precision of their forecasts (overconfidence on reliability of favorable information). 1 4.5 Two “Preference-Based” theories in “Bubble Formation”: First theory argues that investors become less risk averse because of “House Money Effect”, which in short, means having experienced gains, they are less concerned about future losses because any losses will be cushioned by the prior gains....
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...Human Behavior and the Efficiency of the Financial System by Robert J. Shiller* Abstract Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring, mental compartments, overconfidence, over- and underreaction, representativeness heuristic, the disjunction effect, gambling behavior and speculation, perceived irrelevance of history, magical thinking, quasimagical thinking, attention anomalies, the availability heuristic, culture and social contagion, and global culture. Theories of human behavior from psychology, sociology, and anthropology have helped motivate much recent empirical research on the behavior of financial markets. In this paper I will survey both some of the most significant theories (for empirical finance) in these other social sciences and the empirical finance literature itself. Particular attention will be paid to the implications of these theories for the efficient markets hypothesis in finance. This is the hypothesis that financial prices efficiently incorporate all public information and that prices can be regarded as optimal estimates of true investment value at all times. The efficient markets hypothesis in turn is based on more primitive notions that people behave rationally, or accurately maximize expected utility, and are able...
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...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 of the anomalies (i.e., irregularities) that conventional financial theories have failed to explain...
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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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...CHAPTER 9 Behavioural Finance and the Psychology of Investing “The investor’s chief problem, and even his worst enemy, is likely to be himself.” —Benjamin Graham “There are three factors that influence the market: Fear, Greed, and Greed.” —Market folklore Be honest: Do you think of yourself as a better than average driver? If you do, you are not alone. About 80 percent of the people who are asked this question will say yes. Evidently, we tend to overestimate our abilities behind the wheel. Is the same thing true when it comes to making investment decisions? You will probably not be surprised when we say that human beings sometimes make errors in judgment. How these errors, and other aspects of human behaviour, affect investors and asset prices falls under the general heading of “behavioural finance.” In the first part of this chapter, our goal is to acquaint you with some common types of mistakes investors make and their financial implications. As you will see, researchers have identified a wide variety of potentially damaging behaviours. In the second part of the chapter, we describe a trading strategy known as “technical analysis.” Some investors use technical analysis as a tool to try to exploit patterns in prices. These patterns are thought to exist (by advocates of technical analysis) because of predictable behaviour by investors. Chapter 9 Behavioural Finance and the Psychology of Investing 273 9.1 Introduction to Behavioural Finance Sooner...
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...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 Rs.10000 and another set of twenty investors aren’t given any money but are given an option that either they get Rs.25000 for sure go for a toss where they...
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...I. JUDGMENT and DECISION BIASES In the first section of the survey, psychological effects which are relevant for securities markets are defined. These effects mostly derive from common roots. Since it is almost impossible to analyze all the given data, rules of thumbs are preferred such as algorithmic, heuristics and mental modules. Heuristics must be applied to appropriate problems and cases so that they can be effective. There have been debates between both economists and psychologists on how heuristics do. Most of the economists believe in the fact that errors are independent across individual investors. The idea ends up with the equilibrium point and correction. However people mostly share similar heuristics gained from experience. Human mind is not designed solely to make good decisions but also to experience pleasantness. Individuals believe that they are better than they actually are. Also decisions are affected by feelings and mood of decision maker individuals. People can learn from past experiences and failures. However learning is hard and self-deception makes people realize their success more than failures and losses. Many (though not all) of the cognitive biases are stronger for individuals with low cognitive ability or skills than for those with high ability or skills, consistent with biases being genuine errors. A. Heuristic Simplification A.1 Attention/Memory/Ease-of-processing effects Lack of full attention, limitations on memory...
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...[pic] Ecole Supérieure 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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...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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...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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...Can We Measure Portfolio Performance? by Steen Koekebakker and Valeri Zakamouline Introduction The risky assets available to investors are numerous: mutual funds, hedge funds, structured products, equity-linked notes to name a few. The characteristics of each asset class can be summarized in the different return distributions. Even within a single asset class the return distributions of assets are not alike. We assume that the return distributions of all risky assets are known and would like to choose the best asset to invest to, meaning that the risky assets are mutually exclusive investment alternatives. How to do this? The standard approach in financial theory and practice is to employ some portfolio performance measure to rank the various risky investments. Each portfolio performance measure calculates a score for each asset using its probability distribution of returns. The best asset to invest to is the asset with the highest score. The Sharpe ratio is a commonly used measure of portfolio performance. But because it is based on mean-variance theory, this measure can only be used in some restrictive cases, for example, when return distributions are normal. When return distributions are non-normal, the Sharpe ration can lead to misleading conclusions and unsatisfactory paradoxes, see Bernardo and Ledoit (2000) and Hodges (1998). There have been proposed numerous universal performance measures that, in one way or the other, are alternatives to the Sharpe...
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