12.2.10 Econ

12.2.10 Econ - Econ Notes Continued Getting Rich the Econ...

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12/2/10 Econ Notes Continued Getting Rich the Econ Way Implications for Behavioral Finance: Economic agents do not calculate at the margin. Economic agents have mental compartments rather than continuous utility functions. Therefore choices are influenced by how they are “framed.” One implication for Traditional Econ Model: non-maximizing behavior by some leaves “money on the table” for others. See Colander, pp. 270-271 The Efficient Market Hypothesis: An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by
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This note was uploaded on 02/24/2011 for the course ECON ECON 201 taught by Professor Elzinga during the Spring '09 term at UVA.

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12.2.10 Econ - Econ Notes Continued Getting Rich the Econ...

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