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Behavioural Finance and Real Estate > Lecture 1 Introduction > Flashcards

Lecture 1 Introduction Flashcards

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1
Q

Behavioural Finance

A

The study of how psychological phenomena impact financial behaviour and markets

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2
Q

Real Estate

A

the study of the many aspects of land and the buildings on it

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3
Q

What are standard assumptions of Traditional Finance Theory?

A
  • Investors and Managers resemble the Homo Economicus
  • Markets are perfect and informationally efficient
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4
Q

What are the three views on Market efficiency?

A
  1. Efficient Market Fanatic
  2. Behavioral Finance Fanatic
  3. Sensible middle ground
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5
Q

What are the two characteristics of the Efficient Market Fanatic?

A
  • Securities prices are always equal to intrinsic value
  • It is impossible to accurately predict (risk-adjusted returns)
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6
Q

What are the two characteristics of the Behavioral Finance Fanatic

A
  • Stock prices only depend on market psychology
  • it is easy to predict stock price movements
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7
Q

What are the two characteristics of the Sensible middle ground

A
  • Security prices are highly correlated with intrinsic value, but sometimes diverge to a significant degree
  • It is possible to predict (risk-adjusted) returns, but not with great precision
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8
Q

The Homo Economicus

A

Self-regarding maximizer with unlimited and costless information processing capacity and unbreakable willpower

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9
Q

What are important building blocks of decisions?

A

Beliefs (outcomes, probabilities, alternatives)
Preferences

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10
Q

What are the assumptions of the traditional approach of building blocks of decisions?

A

Beliefs are “rational”
Preferences are “normatively acceptable”

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11
Q

What is the problem with the traditional approach of building blocks of decisions?

A

People deviate systematically from rational norms!

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12
Q

Heuristic

A

experience-based rule of thumb or “mental short-cut”

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13
Q

Why do we use heuristics?

A
  • Limited information
  • Limited memory
  • Limited information processing ability
  • Limited time
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14
Q

What are the two destinctions between two types of thinking?

A
  • System1: intuitive and automatic
  • System 2: reflective and deliberate
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15
Q

What are the 6 characteristics of the intuitive system 1?

A

Uncontrolled
Effortless
Associative
Fast
Unconscious
Skilled

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16
Q

What are the 6 characteristics of the Reflective system 2?

A

Controlled
Effortful
Deductive
Slow
Self-aware
Rule-following

17
Q

(4) Homo Sapiens: A “wise man”, but with….

A

Bounded rationality
Bounded awareness
Bounded willpower
Bounded self-interest

Behavioural Finance and Real Estate (12 decks)

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