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    valuation of risks. For the purpose of lowering the risk, Markowitz (1952) introduced the concept of diversification of securities in a portfolio. Thus one can get the benefit of risk aversion to reduce the risk by making a portfolio consisting of different securities. How individual approach to the specific type and nature of risk has been a rising discussion. Sensitivity of risks also depends upon number of other factors such as source of information, degree of individual’s knowledge towards risk and market

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    director states that the topics of focus include “risk tolerance, confidence level, and tendency toward emotional or cognitive investing” (Skinner). This approach allows advisors to communicate more effectively with their clients based on client needs. Conclusion Investors are not by nature rational investors, as was assumed in economic theory. Investors are subject to many behavioral biases and heuristics such as framing, representativeness, and loss aversion. By embracing the fact that your clients are

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    and family responsibilities of their employees. It requires them to acknowledge the positive contribution that diversity can... ... middle of paper ... ...fore, appreciating personality diversity means following risk-averse people when risks must be minimized, and following the risk-takers when its time to be bold. Appreciating personality diversity is the opposite of dogmatically expecting everyone to view situations the way you do, no matter how successfully you have been using your approach

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    Economy Model

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    section{Model}label{sec:model} I model an economy with two assets, one risky asset (the firm) and one riskless asset, which is assumed to be in excess supply and to provide a gross return equal to 1. The firm is set up by a group of emph{entrepreneurs} that hire a emph{manager} to run the firm; these entrepreneurs also design the manager's compensation package, $CP$. The final value of the firm, $v$, is function of the amount invested, $k$, and the profitability per unit of investment, $p$. The

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    Behavioral Finance

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    downgrade of the US treasury sends ripples in the stock markets all over the world .How do investors react to such kind of information? Do we take all the information into account before... ... middle of paper ... ...s have shown that humans are risk averse, and they value loss more than gains from a bet, which means that wealth shows diminishing marginal utility. There is a lot of research work going on in this particular field, more so since the crisis of 2008. The purpose of this article

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    Introduction Although, behavioral finance and market efficiency are topics that may seem separate and different, they both work conjointly. Finance has always been imagined to be a subject of numbers, calculations, spreadsheets and everything that encompasses investing. By glancing over the title of this paper, one could assume that the topic is related to a psychology or behavioral class more than finance. However, by researching the topic, it is clear that finance relies on behavioral sciences

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    introduced by Bernoulli (1738) and further developed by Von Neumann and Morgenstern (1947) states that the “decision maker” bases their decision regarding “risky outcomes” solely on their predicted return or “expected utility”, this recognises the risk averse nature of most market participants. This theory forms a basis for Standard finance theory. People place a larger weight on what they stand to gain or lose from an event rather than the expected value of the event’s result. The Von Neumann and

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    Emergent Properties of Choice

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    Emergent Properties of Choice ABSTRACT: Allais' paradox provides a convenient way to demonstrate that the distribution of alternatives we face in a situation of choice may give rise to new factors. These emergent factors may need to influence a one time choice of rational decision-makers, although they should not be taken into account in long reiterative games. I start from a brief presentation of Allais' paradox; yet, I am not primarily concerned with the question how to solve it. The paradox

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    goods that results in the same utility. All points along the curve are equally desirable; furthermore, a point on a higher indifference curve will result in a higher utility than that of any point on the lower curve. This, however, does not take loss aversion into account. Take the example Kahneman provides of the “hedonic twins” Albert and Ben. Albert lies at position 1 with a salary of $60,000 and 3 weeks of vacation and Ben at position 2 with a salary of $40,000 and 5 weeks of vacation. Because Albert

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    The Importance of Play

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    There are many misconceptions of what play is, it can be mistaken as being an antinom of work, and people consider play as being something one does while being immature and believe that play is grown out of as one grows up. Psychologists, Gaskins, Haight and Lancy studying play in relation to culture identified three cultural views of play that impact children's play. The first is culturally curtailed play, the perception that some pre-industrial societies have; which is that play has limited value

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