Theoretical reconciliation
Ultimately I find both neoclassical economic views and behavioral economic not to be necessarily inconsistent with each other. I instead see them as compatible theories because they really describe the same basic principles. Neoclassical view says that no one is superior at making financial decisions than anyone else all want same thing and are equally informed. The behavioral view considers everyone equally inferior in making investment decisions due to social, cognitive and emotional factors that inhibit one’s ability to make accurate decisions. The market still acts the way it does regardless of how it is truly derived. Neoclassical and psychological theories should thus be integrated to provide greater insight and essentially return to a balanced state, akin to where they were originally.
Proposal to increased financial sustainability
Well given that, neoclassical economics consistent of mere quantifiable data and behavioral economics is based on the unavoidable behavior of humans it would appear that coming up with a solution would be difficult under such theoretical conditions however; this would be further from the case. If one examines the undesired aspects of Wall Street, referring specifically to the excessive risk, volatility and overconfidence as a cause for instability, there are quite readily available solutions to solve these problems. The extent to which risk, volatility, overconfidence are cyclical in nature to the creation of economic bubbles, has been clearly studied and quantified.
Examining the monthly stock market and trading volume over forty years shows that higher volume in trading follows months with higher returns (Statman et al., 2006). This inevitably causes overconf...
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F. Norris (April 29, 2000) “Another Technology Victim; Soros Fund Manager Says He 'Overplayed' Hand” NY Times
M. H. Bouchet and R. Isaak (November 29, 2011) Is the Financial Crisis a Male Syndrome: Bloomberg business week retrieved from http://www.businessweek.com/europe/is-the-financial-crisis-a-male-syndrome-11292011.html
M. Statman, S. Thorely, and K. Vorink, (2006) investor overconfidence and trading volume: review of financial studies 19
By L. Leite (June 1, 2007) The (White) Male-Dominated World of Finance? CBS money watch retrieved from http://www.cbsnews.com/8301-505125_162-28040266/the-white-male-dominated-world-of-finance/
Vatican Calls for 'Central World Bank' to Be Set Up Copyright 2011 Thomson Reuters retrieved from http://www.cnbc.com/id/45013499/Vatican_Calls_for_Central_World_Bank_to_Be_Set_Up
occupywallst.org
www.grameen-info.org
The most illuminating element of The Hearts of Men is the unique approach Ehrenreich takes in evaluating the effect gender roles have on men financially. She takes the fact that ...
The bubble that formed popped, crashing the economy, and causing millions of people to their comfortable state of living. Thus the end of the age were believed “A Chicken in Every Pot, a Car in Every Garage.”(page 3) is available for everyone. These bubbles are hard to prevent. One overly simplified solution is to have a large amount of experts keep a close eye on the economy and the market and bring back information about how much should be invested. The problem with that is that it could easily end up hindering our economy by being overprotective and even in such an advanced age, especially after the lessons of the the great depression the market crashed in 2008. Showing how hard it is to prevent bubbles from
Market crashes are not a new phenomenon but the most disturbing fact about the financial crisis of 2008, was that it was self-inflicted. What started as a credit crunch during the early 2006, turned into a fully-blown recession by mid-2008.The world’s financial system received a huge shock in September 2008, with the collapse of The Lehman Brothers, one of the biggest global investment banks [3]. The Global Financial Crisis of 2008, was undoubtedly the worst economic slump since the Great Depression of 1930. While the bankers and financers hold the responsibility for the global economic turmoil, the business schools have also, being partially responsible, faced criticism.
Markets can be efficient even if stock prices exhibit greater volatility than it can be explained by fundamentals such as earnings and dividends. Chapter 11: Potshots at the Efficient –Market Theory and Why They Miss, presents an argument of stock market fluctuations that stock prices show far too much variability to be explained by an efficient-market theory of pricing. It also talks about how one must look to behavioral considerations and to crowd psychology to explain the actual process of price determination in the stock market. I agree with Malkiel’s proclaim about the demise of the efficient-market theory and how it reasons to show that market prices are indeed predictable. Such arguments are exaggerated and the extent to which the stock market is predictable is greatly overstated because market valuation rests on both logical and psychological
Johnson, Allan G. The Gender Knot: Unraveling our Patriarchal Legacy. Philadelphia: Temple University Press. 1997.
During the Gilded Age white were understood to be at the top and all other ethnicities were below them as well in the 1941, however during the 1950-1980 things were starting to change but not dramatically. White men in all three periods were allowed to speak their minds and say whatever they wanted because in their minds they understood that they were at the top.4 For example, white men joined forces and created the unions to go against the overbearing power of corporations.5 These corporations c...
] This catastrophic event is caused by the accumulation of a large scale of speculation by not only investors but also banks and institutions in the stock market. Though the unemployment rate was climbing during the 1920s and economy was not looking good, people on Wall Street were not affected by the depressing news. The optimism spread from Wall Street to small investors and they were investing with the money they don’t have, which is investing on margin as high as 90%. When the speculative bubble burst, people lost everything including houses and pensions. The main reason ...
Kolahi, F. (2006). Turn-of-the Month Effect for the European Stock Market. Retrieved March 12, 2008, from http://ir.lib.sfu.ca/retrieve/3705/etd2349.pdf
The purpose of this study is to provide some focus, comparison, and perspective on the importance of mutual fund flows. It presents evidence that mutual fund flows may be a very significant factor in explaining monthly-movements in stock market returns, and it provides some estimates on just how large the impact might be.
The most significant and well-examined calendar anomaly is the “January effect”, also known as the turn of the year effect. According to this phenomenon the performance of stocks are not equal for all the months of the year. In particularly, the common stocks have higher returns in January in comparison with the other eleven months and as a result the investors can make unusual profits. There are numerous of researches which studied and corroborated the presence of this calendar anomaly in several exchange stock markets. However, there are a lot of contemporary surveys that diminish the existence of this effect. Wachtel (1942) was the first who examined the presence of the January effect in Dow Jones Index (USA) for the time period 1927-1942. Wachtel reported high returns in January in comparison with the other months. Another significant research was published by Rozeff and Kinney...
Overconfidence often hurts financial investors because they underestimate the stock market's unpredictability. Stock markets fluctuate every day, some days for the better, some days for the worse. But on the days, it fluctuates for the benefit of the investor, and they attribute that success to their personal skills. According to Gervais and Odean, overconfident investors trade their stocks way too much because they believe it will lead to a better financial gain, when in reality they are hurting their chances of making more money. Purpose of Study Based on the information provided, the researchers of this study wanted to investigate two things.
Keynesian method and world-systems theory deserve special attention. It is Keynesianism that makes possible for the radical political economists to apply the bipolar model, centered on
Traditional finance perspective theorist believes that individuals who have will to venture into investment activities does not allow their emotions to be guided by how investment information is presented to them. However, the same cannot be said for the behavioural finance perspective. Through psychological studies, researchers of behavioural finance have come to the understanding of how human behaviour and behavioural finance connected. This connection can create behavioural biases which can positively or negatively impact on the growth of investment opportunities. This research is on behavioural biases is categorized into two specific groups, cognitive errors and emotional biases.
Economics is probably the science that arguably has had the most impact in today’s times. In fact it can barely be called a science in a strict sense, since human behavior is not governed by laws of nature unlike other non living objects, which makes the prediction and forecasting stock prices, economic conditions all the more difficult. In recent decades economists have tried to give a more structured and mathematical explanation to their theories concerning how human beings make their decisions. However these theories have come under immense criticism as they don’t hold true in real time. In reality, human beings rarely behave rationally which is the basic assumption in many of the economic theories; rather we make a lot of our decisions based on our intuition and limited knowledge available to us. When the financial crisis of 2008 came upon us, a lot of questions were raised on the apparent predictive abilities of the various economic theories. Merely 12 economists were able to foresee the massive crisis which now shows signs of deepening into a double dip recession.
...ong for every single question. Overconfidence started decrease after a series of actions. In a different study [Arkes, et al., 1987], subjects started losing their overconfidence after given response after 5 deceptive and difficult problems.Additionally, we are according to Kasper's [1996] an overview on DSS research which casually providing information is not good enough. Almost all overconfidence studies have been working on individuals. Anyway, Company bosses rely much upon one-to-one meetings. From which, we know if groups or individuals are critically overconfident. Inspired of focusing on most overconfident research conducted on individuals, there is a proof that overconfidence also happens in the group settings [Ono & Davis, 1988; Sniezek & Henry, 1989; Plous, 1995].Human Err, SSR: 2003.Reducing Overconfidence in Spreadsheet Development Dr. Raymond R. Panko.