9.1

Question 1

Narrow framing

Answer 1

People tend to consider each decision as unique

Ignore the interactions among multiple decisions

Question 2

Traditional portfolio choice model

Answer 2

Investors formulate their trading decisions my maximizing expected utility defined over their total wealth

Opposite psychological research

Question 3

Disposition effect and its relationship with narrow framing

Answer 3

Disposition effect = inv are reluctant to realise losses (risk-seeking) and prefer to sell winners (certain gain)

NF sensitice to performanxe of individual stock instead of overall portfolio -> Low Trade clustering -> higher DE: higher propensity to sell w (certain gain) and keep l ( risk-seeking)

Question 4

Portfolio diversification and narrow framing

Answer 4

They examine risk of individual stocks ( don’t pay attention to stock correlations) and therefore don’t diversify - some stocks only appear attractive when used in diversification

BF make simultaneous trading decisions - high DV

Question 5

Proxy framing

Answer 5

Trade clustering - simultaneous decision making

Question 6

2 interpretations Disposition Eff

Answer 6

1. Ppl are unconsciously using NF
2. Ppl are consciously using BF - hedonic optimizers = utility combined outcome > utility segregated outcome

Portfolio level thinking

Question 7

Framing and performance relationship

Answer 7

BF are better positioned to examine risk portfolio -> higher risk-adjusted performance

Question 8

Why control for portfolio size and TPY

Answer 8

PGR = proportion realized gains / losses

Both measures are smaller for portfolios that are larger and trade more frequent. The not impact results on DE => ATC

Question 9

DE

Answer 9

Investors are reluctant to realize losses but willing to sell winners