Financial Services _Çô Client Services RFC126 Lecture Notes - Lecture 12: Risk-Free Interest Rate, Sharpe Ratio, Emotional Bias
22 Nov 2016
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Does client want to fix these problems. Behavioural finance - combines psychology & economics to explain investor behaviour. Personal beliefs & biases can result in decisions that are not rational. Investors can be risk averse or risk seeking. 2 types systematic errors in financial judgment or perception of economic reality: cognitive bias, emotional bias. Want to make decisions that increase happiness sell winning investments. Sell take ur gains, maybe if you analyzed your gain, rational thinking that believe 20%, but it may tell us to take our gains and us happy. Loss aversion - avoid decisions that are unpleasant sell at a loss. Don"t make to make decision make us unhappy. If your down 70% as long as you don"t sell it, you haven"t lost it yet: psychologically if you don"t sell it, you haven"t lost yet, it. Emotionally/psychologically, we sell to early, or we hold to long: finance = rational, behavior = not rational could recover.
