FI 491 Lecture Notes - Lecture 37: Wishful Thinking, Market Trend, Fallacy
Document Summary
Generally associated with a bubble or two. They are sudden, usually lasting less than a week. However the financial aftermath can last for years. Provides alternative to classical, rational economic decision making. Investors are much more distressed by prospective losses than they are happy about prospective gains. People focus on changes of wealth, as opposed to levels of wealth. The same problem, described two different ways can have different effects on the same investor. A reluctance to sale investments after they have fallen in value. Someone suffering from loss aversion will think if they can just somehow get even, they"ll be able to sale the stock. Someone suffering from this may have "geteven-itis" Associating a stock with it"s purchase price, i. e; fixating on a reference price. The effect of risking more with money that was not hard earned (house money)
