ADMS 1000 Study Guide - Behavioral Economics, Moral Hazard, Historical Cost

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ADMS 1000 Full Course Notes
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ADMS 1000 Full Course Notes
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3. 7. 3 portfolio risk as the number of securities increases. The reaction of professional accounting bodies to the decision usefulness. The main purpose of this chapter is to provide a framework for understanding the concept of decision usefulness of financial reporting. Consistent with the conceptual frameworks, i assume that the major decision problem to which financial reporting is oriented is the investment decision. I then argue that if accountants are to produce financial statements that are useful for investment decisions, they need to understand how rational investors make such decisions. I use this theory, including the revision of beliefs by means of bayes" theorem, as a model of rational investment decision making. Some instructors and students may disagree with this argument, in view of increasing acceptance by academics that securities markets are not fully efficient, and that investors may not be rational in an economic sense.

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