Lecture 13 Flashcards
1
Q
2 Categories of irrationalities
A
Investors do not process information correctly vs. investors make inconsistent decisions
Forecasting errors, overconfidence, conservatism, sample size neglect, framing/mental accounting, regret avoidance
2
Q
Prospect theory
A
Risk behavior varies based on safety of event
3
Q
Limits to arbitrage
A
Behavioral biases would not matter if rational arbitragers could fully exploit the mistakes
markets can remain longer irrational than you solvent
costs/restrictions of shorting
what if i am wrong?
4
Q
Disposition effect
A
tendency of investors to hold on to losing investments
