BUS 421 Lecture Notes - Lecture 5: Rational Expectations, Capital Asset Pricing Model, Fundamental Analysis
16 Dec 2017
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Document Summary
We are paying a terrible price for our faith in the power of the invisible hand, standard econ theory (human beings are capable of always making rational decisions & markets/institutions are healthy self-regulating) Irrationality = the real invisible hand, drives human d-m. Behavioral econ = view of how ppl/orgs operate assumes that cognitive biases often prevent ppl from making rational decs, despite their best efforts: examines the real decs ppl make. E. g. the word free can turn us away from a better deal & toward a free one. When orgs acknowledge & anticipate irrational behavior, they can offset it & avoid damaging results. Most indvs will cheat (just a bit) while indulging in rationalization that allows them to live w/themselves: did an experiment to showed that: When someone realizes their cheating benefits other team members, dishonesty . Members of experiment group cheated more when they knew e/o more.
