FNCE 239 Lecture Notes - Lecture 8: Bayes Estimator, Natural Selection, Loss Aversion

• School: UPenn
• Department: Finance
• Course: FNCE 239
• Professor: N I K O L A I R O U S S A N O V

Document Summary

2/9/16: lecture 8 notes: demand by average investor. 2 key assumpions behind eicient markets: o o. Law of one price- assets with the same payofs have the same price. )- e[r] is proporional to the riskiness of stock. Why is the average investor irraional: availability- we"re inluenced by the ease with which similar instances or associaions can be brought to mind. That is, we"re largely inluenced by what the media shows. i. e. _ _ _ _ _ n _ vs. _ _ _ _ _ _ _ The second number should be higher, but this is not what we see o. Representaiveness- people tend to neglect the prior probability of the base right. The probability that event x belongs to set y is judged on the basis of how similar x is to stereotype of y x|info )= = we tend to think this si the true probability, when really, it"s much less.