Archivio per 5 gennaio 2015

05
Gen
15

5 Things Investors Need To Know about Investor Behavior | Victor Ricciardi | LinkedIn

Overconfidence versus Status Quo Bias

One major category of investor exhibits overconfident behavior and this results in over-trading, increased expenses, and lower performance in their portfolios. On the other hand, retirees or retirement savers tend to suffer from inertia or (status quo bias) and under manage their investment accounts. A compromise approach is develop a strategy that addresses the shortcomings of both of these two biases by indentifying the individual’s risk tolerance profile, constructing a diversified asset allocation strategy of mutual funds and other asset classes, and implementing portfolio rebalancing on an annual basis.

Mental Accounting

Mental accounting is a cognitive bias in which, investors separate their financial holdings into different mental accounts. If an individual has a negative investment return for the year on a stock, this person will apply a judgment process that only focuses on the favorable attributes of the security such as a high dividend yield by inserting it into a positive mental account. People should view individual securities in the content of a long-term diversified investment portfolio.

Lack of self-control

Source: www.linkedin.com

See on Scoop.itBounded Rationality and Beyond

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05
Gen
15

5 Things Investors Need To Know about Investor Behavior | Victor Ricciardi | LinkedIn

See on Scoop.itBounded Rationality and Beyond

Overconfidence versus Status Quo Bias

One major category of investor exhibits overconfident behavior and this results in over-trading, increased expenses, and lower performance in their portfolios. On the other hand, retirees or retirement savers tend to suffer from inertia or (status quo bias) and under manage their investment accounts. A compromise approach is develop a strategy that addresses the shortcomings of both of these two biases by indentifying the individual’s risk tolerance profile, constructing a diversified asset allocation strategy of mutual funds and other asset classes, and implementing portfolio rebalancing on an annual basis.

Mental Accounting

Mental accounting is a cognitive bias in which, investors separate their financial holdings into different mental accounts. If an individual has a negative investment return for the year on a stock, this person will apply a judgment process that only focuses on the favorable attributes of the security such as a high dividend yield by inserting it into a positive mental account. People should view individual securities in the content of a long-term diversified investment portfolio.

Lack of self-control

See on linkedin.com

05
Gen
15

Cass Sunstein – Bio – The Daily Show | Comedy Central

Cass Sunstein is the founder and director of the Program on Behavioral Economics and Public Policy as well as the Robert Walmsley University Professor and Felix Frankfurter Professor of Law at Harvard Law School. His books include “Wiser: Getting Beyond Groupthink to Make Groups Smarter” (2014), “Nudge: Improving Decisions About Health, Wealth, and Happiness” (2008) and “Infotopia: How Many Minds Produce Knowledge” (2006). Sunstein is the former administrator of the White House Office of Information and Regulatory Affairs.

Source: thedailyshow.cc.com

See on Scoop.itBounded Rationality and Beyond

05
Gen
15

Cass Sunstein – Bio – The Daily Show | Comedy Central

See on Scoop.itBounded Rationality and Beyond

Cass Sunstein is the founder and director of the Program on Behavioral Economics and Public Policy as well as the Robert Walmsley University Professor and Felix Frankfurter Professor of Law at Harvard Law School. His books include “Wiser: Getting Beyond Groupthink to Make Groups Smarter” (2014), “Nudge: Improving Decisions About Health, Wealth, and Happiness” (2008) and “Infotopia: How Many Minds Produce Knowledge” (2006). Sunstein is the former administrator of the White House Office of Information and Regulatory Affairs.
See on thedailyshow.cc.com

05
Gen
15

The Council of Psychological Advisers by Cass R. Sunstein :: SSRN

Abstract:      
Findings in behavioral science, including psychology, have been influencing policies and reforms in many nations. “Choice architecture” can affect outcomes even if material incentives are not involved. In some contexts, default rules, simplification, and uses of social norms have been found to have even larger effects than significant economic incentives. Psychological research is helping to inform initiatives in areas that include savings, finance, highway safety, consumer protection, energy, climate change, obesity, education, poverty, development, crime, corruption, health, and the environment. No nation has created a Council of Psychological Advisers, but the role of behavioral research is likely to grow in coming years, especially in light of the mounting interest in promoting ease and simplification (“navigability”); in increasing effectiveness, economic growth, and competitiveness; and in low-cost, choice-preserving approaches. (The Appendix is a one-page list of thirty-one such approaches.)

Source: papers.ssrn.com

See on Scoop.itBounded Rationality and Beyond

05
Gen
15

The Council of Psychological Advisers by Cass R. Sunstein :: SSRN

See on Scoop.itBounded Rationality and Beyond

Abstract:      
Findings in behavioral science, including psychology, have been influencing policies and reforms in many nations. “Choice architecture” can affect outcomes even if material incentives are not involved. In some contexts, default rules, simplification, and uses of social norms have been found to have even larger effects than significant economic incentives. Psychological research is helping to inform initiatives in areas that include savings, finance, highway safety, consumer protection, energy, climate change, obesity, education, poverty, development, crime, corruption, health, and the environment. No nation has created a Council of Psychological Advisers, but the role of behavioral research is likely to grow in coming years, especially in light of the mounting interest in promoting ease and simplification (“navigability”); in increasing effectiveness, economic growth, and competitiveness; and in low-cost, choice-preserving approaches. (The Appendix is a one-page list of thirty-one such approaches.)

See on papers.ssrn.com

05
Gen
15

Legal Theory Blog: Legal Theory Bookworm: “Law, Psychology, and Morality” by Zamir

The Legal Theory Bookworm recommends Law, Psychology, and Morality: The Role of Loss Aversion by Eyal Zamir.  Here is a description:

Kahneman and Tversky’s Prospect Theory posits that people do not perceive outcomes as final states of wealth or welfare, but rather as gains or losses in relation to some reference point. People are generally loss averse, meaning that the disutility generated by a loss is greater than the utility produced by a commensurate gain. Loss aversion is related to psychological phenomena such as the status quo and omission biases, the endowment effect, and escalation of commitment.

Law, Psychology, and Morality: The Role of Loss Aversion systematically analyzes the complex relationships between loss aversion and the law weaving together insights from cognitive and social psychology, neuropsychology, behavioral economics, experimental legal studies, economic analysis of law, normative ethics, moral psychology, and comparative law. It discusses diverse legal issues in private and public law, national and international law, and substantive and procedural law. Eyal Zamir provides an overview of the psychological studies of loss aversion to examine its effect on human behavior in the contexts of particular interest to the law, while discussing the impact of the law on people’s behavior through the framing of the choices they encounter. The book further highlights an intriguing compatibility between loss aversion and fundamental features of the law and various legal doctrines, while theorizing about the causes of this compatibility by drawing on insights from the economic analysis of law and evolutionary psychology. The book points to the correlation between loss aversion, deontological and commonsense morality, and the law, while proposing many normative implications.

#neuroeconomy

Source: lsolum.typepad.com

See on Scoop.itBounded Rationality and Beyond




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