BehavioraFinance - Behavioral Finance The 1990s bubble and...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Behavioral Finance The 1990’s bubble and 2000 crash in the stock market along with the Nobel Prize awarded to Kahneman and Smith has caused an increased interest in BEHAVIORAL FINANCE, which was already one of the hottest areas in business. Vernon smith was asked by the SEC to try to find a way to deal with the kind of market crash that occurred in 1987.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Your labs on the asset market are slightly modified versions of the experiment that Vernon and others came up with. In particular , in the each lab the asset had a mean payoff of $.24 per round for 15 rounds so the expected value of a share in the first round is: EV = 15*$.24 = $3.60. The EV decreases linearly by $.24 per round until the last round when the asset share is worth only $.24, since share pay after the round is over. What Vernon found was that, more often than not, the trading price of shares failed to follow EV. Rather, prices were almost always above EV until a crash occurred in
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

BehavioraFinance - Behavioral Finance The 1990s bubble and...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online