Lernkarten

Nicolas Steinmann
Karten 51 Karten
Lernende 2 Lernende
Sprache English
Stufe Universität
Erstellt / Aktualisiert 15.01.2022 / 19.01.2022
Lizenzierung Keine Angabe
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0 Exakte Antworten 51 Text Antworten 0 Multiple Choice Antworten
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Lizenzierung: Keine Angabe

Why is the utility function in Prospect theory convex on the left of the origin?

The convexitiy on the left origin of the utility function indicates risk seeking behaviors when losses occur.

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Cognitive Errors

  • Conservatism
  • Aversion to ambiguity
  • Confirmation
  • Representativenes
  • Illusion of control
  • Hindsight
  • Disjunction
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Information Processing

  • Anchoring
  • Mental accounting
  • Framing
  • Overreaction
  • magical thinking
  • sunk cost
  • forecasting error
  • overreaction and availability 
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Emotional Bias

  • Loss aversion
  • Overconfidence
  • Self control
  • Status Quo
  • Endowment
  • Regret aversion
  • Naive Diversification
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Other Bias

  • Gambler's Fallacy
  • Herd behaviour
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Conservatism Bias

People tend to overweight the base rates and underweight the new information, resulting in revised beliefs about probabilities and outcomes that demonstrate an under-reaction to the new information.

  • Many people become anchored to their ideas and will not update their expectations when new information arrives (anchoring bias)
  • Only tentative and insufficient reaction to news
  • This underreaction to news leads to momentum in stock returns (initial under-reaction).
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Aversion to Ambiguity Bias

People prefer the familiar to the unfamiliar.

An investment manager with deeper knowledge and experiences in bonds prefers the certainty of bond cash flows to the uncertainty of risk asset cash flows, even though investors might receive appropriately higher returns for assuming that risk.

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Confirmation Bias

People give more weight to evidence that (1) supports their beliefs and (2) ignore or modify evidence that conflicts with their beliefs.

“Human Ratio” behind it:

  • faulty reasoning - easily corrected
  • feelings - harder to correct