ILROB 1220 Lecture Notes - Lecture 7: Real Estate Bubble, Panic Selling, Futures Contract
Document Summary
Makes decisions systematically (considering all evidence, thinking of all options, etc. ) Base decisions on facts and objective information. Bubble: when prices rises above their actual value. Speculation about stock trends always involves subjective judgements - investor"s beliefs. Neglect base rate probabilities (how often something occurs in the general population) Instead, judge probabilities by the degree to which one thing resembles another. Conjunctive fallacy - the conjunction (co-occurrence) of two events (eg. being a bank teller and and feminist) cannot be greater than the likelihood of either event alone. Simple patterns feel intuitive (bull markets; bear markets) Ignore actual (relatively low) probability of a bull market. See a short-term stock market trend and expect it to continue - even when professionally trained to know better. Men willingly believe what they wish - julius ceasar. What we want to happen influences our judgements about what will happen. People overestimate the probability of success of entities with which they are or feel associated.