Lecture 7 - Behavioural Finance

Lecture 7 - Behavioural Finance - An Introduction to...

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An Introduction to Behavioral Finance Quach Manh Hao, PhD
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Behavioural Finance b Economic and financial theories assume people behave rationally b But we will show how irrationally they behave! b You may find the lecture note helpful for your understanding of how psychological and behavioural factors count in stock trading and investment b But better to start with this…
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You are going up all the time, but are still in the same plane.
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What kind of the pool is this?
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Which way is the window facing?
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How many hearts can you see?
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Deceiving the brain b These examples simple show that it’s very easy to trick the brain. b In other words, it’s very likely that people behave differently with the same facts. b It would mean people do not behave rationally – which always is assumed by most economic theories. b Please gather by groups now…
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Question 1 – How is your English? b Excellent b Very good b Good b Fairly good b Poor
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Overconfidence b Most people would comfortably choose the second and third choice but not the top one. b It shows not only that people are overconfident but also they are afraid of appreciating themselves as the bests. b This means that investors always assume there must be someone less and more intelligent than themselves.
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Question 2 – What is the prob? b What prob would you attach to the outcome of a “6” from the rolling of a fair dice? b Most people correctly attach a prob of 1/6. b Now you know that the outcome of three previous rolls of the dice was 6, what would be the prob? b Most people would give a higher weight.
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Question 3 – Which is most likely? b
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Lecture 7 - Behavioural Finance - An Introduction to...

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