homework1 - Mitch McMichael AEM 4230: Contemporary Topics...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Mitch McMichael AEM 4230: Contemporary Topics in Applied Finance Tuesday, September 7, 2010 Homework #1 1. a) When a person is referred to as overconfident they hold one or more of the following traits. They can make mistakes more frequently than they believe, they view themselves as being better than average, their believed ability is less than it actually is, and finally their believed knowledge is less than it actually is. An example of overconfidence that was used in class was when we were looking at Sun, and the company refused to cut prices, increased spending on research and development, and even acquired a new branch in Cobalt. All of this was during a recession and would have been unadvised by anyone not in control of the company. They were overconfident that they would be unaffected by the current financial situation. Excessive optimism on the other hand refers to two types of characteristics. The first is how they overestimate how frequently experience favorable outcomes and the other is the opposite; on how they underestimate how frequently experience unfavorable outcomes. An example of this is how McNealy underestimated the length of the recession. Overconfidence and excessive optimism are different by how overconfidence looks within the individual and over evaluates their personality traits, while excessive optimism is portraying the overall economy in this sense, in a way that pertains only to that company, or individual that will be beneficial to them rather than being accurate in their portrayal. b) A Confirmation bias is when you attach too much importance to what supports your idea and not enough on what refutes it. A good example of this is when entrepreneurs are researching their idea it is not uncommon for them to only have ideas and information that supports the success of their product or service when pitching it to investors. The illusion of control happens when an individual or company overestimates the extent to which change affects them. A good example
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/08/2012 for the course AEM 4230 taught by Professor Bogan,v. during the Fall '08 term at Cornell University (Engineering School).

Page1 / 3

homework1 - Mitch McMichael AEM 4230: Contemporary Topics...

This preview shows document pages 1 - 2. Sign up to view the full document.

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