Behavioral Finance

Challenges are presented to people on the daily basis. What to eat, drink, where they have to go, who they need to see, and etc... These things all impact the decision making process and the decisions made. In financial decision making, highly successful people do not make investment decisions based on past sunk outcomes, rather by examining choices with no regard for past experiences; this approach conflicts with what one may expect. In addition to past experiences, there are several cognitive biases that influence decision making.

5) One paragraph applying a behavioral theoretical framework to development. Discuss issues such as conditioning, reinforcement, punishment, lifestyle and habits.

Understanding behavioral economics will also help in making critical decisions like how much a person need to be saving, how much effort we need to put in our works and where we will choose to live in future. The level and amount of saving one needs to emulate is dependent on

1. In terms of my personal characteristics, risk preference, and market beliefs, I concluded my investment philosophy as the following: Medium and long-term approach is preferred in my portfolio. It takes patience to get long-term returns. Market opportunities occur every day. Yet, success doesn't come for those who seized every

Decisions, decisions, decisions. Everything in life entails making decisions, whether it be the decision to go back to school to pursue a higher education, deciding to eat cereal in the morning, or even reading this paper. Everything we do is based on decisions. Now, if you’re a computer, making decisions may be an objective task solely based on logic, but since we are humans, there are many factors that affect our decisions. These factors may be external, like the weather, but many are internal and may make an even bigger impact on our decisions than the external factors. Biases and errors are prime examples of influential internal factors and beliefs that affect the decision making process. This week our group discussed such biases and errors in decision making. We delved into the biases that affect us personally, like Anchoring Bias, Hindsight Bias, and Overconfidence Bias, as well as a few other biases.

In October 29, 1929, the fate of the United States and the rest of the world completely shifted as one of the biggest economic downfalls in American history. An unstable banking system led to many Americans attempting to retrieve their money from the Stock Market until the overload eventually crashed the economy Tuesday, October 24 1929. Due to the impact of World War I , the Stock Market’s Black Tuesday brought many Americans during the 1920’s, years of worldwide economic downfall, as well as strong backflash that eventually led to World War II.

In the book “All Money in the World” by Laura Vanderkam discusses about ways that people get and spend money in their lives and the relative between money and happiness. Each title, the author shows us different ways to use and earn money like getting, spending and sharing. But in

3. Then, those funds often are invested in mutual funds available inside the retirement plan.

In the mid of October, the fall started to begin when a frequent amount of people started to trade a numerous supply of shares totaling 12,894,650 in one day. Five days later, 16,410,030 shares were traded in the New York Stock Exchange in another single day, and after that, the economy started to tumble down. After the crash, the economy started to progressively get worse with the stocks in the early 1930’s only worth 20 percent of the value in the summer of 1929. Unemployment began to rise 4 years after the crash effecting 15 million people, which was 30 percent of the entire workforce. This also included over half of the United State banks receive bankruptcy and it wasn’t until 1939, when World War II began when the production of the stocks briefly started going

exaggerated. Diversified companies, straddling multiple industries, or even just different parts of one large sector, remain a dominant, if not always fashionable, feature of stock markets from the U.S.

way to get rich quick. However, economic historians estimate that a relatively small number of Americans, about 4 million, had investments in the market at any one time

Behavioural economics is the study of the effects that psychology has on the decision making of the economy. This tends to be the way that people think and feel when they are spending money on a certain good or service. The great economist Adam Smith was the first follower of

Source: “The Upside of Irrationality”, Dan Ariely, 2010 2 FEAR OF OVERPAYMENT SOLUTION: CREATING EFFECTIVE FRAMES TO GIVE CONSUMERS NEW POINTS OF REFERENCE THE RELATIVE FRAMING AS SAVINGS A m a z o n ’s s t r a t e g y t o c r o s s - s e l l additional products to consumers by highlighting the remaining amount of a balance required for free shipping. The relative framing of additional purchases as savings in shipping costs helps consumers overcome the reality of a higher total price after additional items are added.

The topic of the document is to review the events corresponding to the crash, a brief history regarding the factors contributing to the severity of the 1987 stock market crash and several solutions carried out by the federal reserve in the time of crisis throughout the event. The initial information was given by

The biggest mistake the board of directors made was to trust a single man only because of his reputation. Just because Nick Leeson was reporting large profits, he was given virtually free rein and nobody had knowledge of his activity, when a trader on arbitrage strategies should not report such profits. The fact that Nick Leeson was reporting such profits should have been interpreted by the board of directors as a warning bell.