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Credit and Collection > Behavioral Finance > Flashcards

Behavioral Finance Flashcards

1
Q

study of influence of psychology on the behavior of investors or financial analysts

A

Behavioral Finance

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2
Q

Investors are not always_______, have _____ to their ____-_______, and are influenced by their own _______

A

rational, limits, self-control, biases

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3
Q

“the study of the influence of psychology on the behavior of financial practitioners and subsequent effects on the market”

A

Sewell (2001)

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4
Q

“application of psychology to financial behavior— the behavior of investment practitioners”

A

Shefrin (1999)

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5
Q

“study of human interprets and acts on information to make informed investment decisions”

A

Lintner G. (1998)

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6
Q

“seeks to understand and predict systematic financial market implications of psychology decision process”

A

Olsen R. (1998)

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7
Q

“combining twin discipline of psychology and economics to explain why and how people make seemingly irrational or illogical decisions when they save, invest, spend and borrow money”

A

Belsky and Gilovich (1999)

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8
Q

combining twin discipline of psychology and economics to explain why and how people make seemingly irrational or illogical decisions when they save, invest, spend and borrow money

A

Behavioral Economics

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9
Q

what are the twin discipline

A

Psychology and economics

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10
Q

“science regarding how psychology influences financial market” “individuals are affected by psychology factors like cognitive biases in their decision-making, rather than being rational and wealth maximizing”

A

W. Forbes (2009)

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11
Q

“challenges the theory of market efficiency by providing insights into why and how market can be inefficient due to irrationality in human behavior”

A

M. Sewell (2007)

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12
Q
  1. Investors’ biases are influencing their choices
  2. Experience and heuristics help in making complex decisions
  3. The mind process available information matching it with personal preferences
A

M. Schindler (2007)

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13
Q

taken from the field of psychology and finance, which tries to understand various ________ observations in stock market with better explanations.

A

puzzling

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14
Q

new area of financial research, attempts to explain market ______ and other market activity as well as proposes ________-based theories to explain ___________

A

Anomalies, psychology, stock market anomalies

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15
Q

discipline of behavioral economics, ultimately ______ the investing decisions of market players

A

shaping

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16
Q

contradicts the theory of _______ finance. Human beings are _____ and _____ at times, brings forward the consequences of personal biases over investment decisions

A

traditional, normal, irrational

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17
Q

Foundations of Behavioral Finance

A

Psychology
Sociology
Finance

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18
Q

5 Foundation Blocks of Standard Finance

A
  1. People are rational
  2. People construct portfolios as described by mean-variance portfolio theory
  3. People save and spend as described by standard life-cycle theory
  4. Expected returns of investments, standard asset pricing theory
  5. Markets are efficient, price equals value of all securities and markets are hard to beat
19
Q

include only high expected returns and low risk

A

mean-variance portfolio theory

20
Q

it is easy to identify and implement the right way to save and spend

A

standard life cycle theory

21
Q

differences in expected returns are determined only by differences in risk

A

standard asset pricing theory

22
Q

Second Generation 5 Foundation Blocks of Behavioral Finance

A
  1. People are normal
  2. People construct portfolio based on behavioral finance portfolio theory
  3. People save and spend according to behavioral life-cycle theory
  4. Expected returns of investment, as described by behavioral asset pricing theory
  5. Markets are inefficient in a way that price is equals to the value in them but efficient in a way that they are hard to beat
23
Q
A
24
Q

Extend beyond high expected returns and low risks, includes social responsibility and social status

A

Behavioral Finance Portfolio Theory

25
Q

Impediments make it difficult to save and spend in the right way

A

Behavioral life-cycle theory

26
Q

differences in expected returns are determined by more than just differences in risk

A

Behavioral asset pricing theory

27
Q

Psychology of the stock marker by Selden

A

1912, Informal Origin

28
Q

Study of Cognitive Dissonance by Fessinger

A

1956

29
Q

Discussion of Risk Aversion and the utility function by Pratt

A

1964

30
Q

Official Start of Behavioral Finance

A

1979

31
Q

Author of Prospect Theory: A study of Decision Making under Risk

A

Daniel Kahneman and Amos Tversky

32
Q

willing to take on more risk in the face of losses, but become more afraid of risk when it comes to protecting gain

A

loss averse

33
Q

Bedrock of Traditional Finance

A

Notion of rational man— rational expectations wealth maximizer

34
Q

View money as being in separate and disparate pools depending on function

A

Richard Thaler

35
Q

Founding Fathers of Behavioral Finance

A

Daniel Kahneman, Amos Tversky, Richard Thaler

36
Q

works of Founding Fathers of Behavioral Finance

A

Biases Literature

37
Q

Scope of Behavioral Finance

A

Investors, Corporations, Markets, Regulators, Educators

38
Q

Behavioral Finance Concepts

A

Mental Accounting
Herd Behavior
Emotional Gap
Anchoring
Self-attribution

39
Q

prospenity of the people to allocate money for specific purposes

A

Mental Accounting

40
Q

people tend to mimic the financial behavior of the majority of the Herd

A

Herd Behavior

41
Q

decision making based on extreme emotions or emotional strains

A

Emotional Gap

42
Q

attaching a spending level to a certain reference

A

Anchoring

43
Q
A

Credit and Collection (8 decks)

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