heuristic and biases overconfidence emotional foundation

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1、BehavioralFinanceDr.EvangelosVagenas-NanosRoom359A,MainBuilding,WestQuadrangleLectures4:HeuristicsandBiases;Overconfidence;EmotionalFoundationsContentsLecture4•Heuristicsandbiases(AD,Ch.5)–Perception,memory,andheuristics(5.2)–Familiarityandrelatedheuristi

2、cs(5.3)–Representativenessandrelatedbiases(5.4)–Anchoring(5.5)–Irrationalityandadaption(5.6)•Skip:Shiller’smodel(bottomofpage68topage70)•Overconfidence(AD,Ch.6)–Miscalibration(6.2)–Otherstrainsofoverconfidence(6.3)–Factorsimpedingcorrection(6.4)ContentsLe

3、cture4•Emotionalfoundations–Introduction(7.1)–Thesubstanceofemotion(7.2)–Evolutionarytheory(7.4)•PleasereadtheremainderofChapter7yourself•Note:Chapter7willnotbeincludedinthefinalexam!PerceptionandProcessingConstraints(5.2)•Criticismontraditionalfinance–Co

4、nstrainedoptimizationassumption:individualshaveanunlimitedcapabilitytomakerationaldecisions–Reality:individualsuseheuristics(shortcuts)•Heuristics–Expectationsinfluenceperceptions(example:blackthreeofheartscard)–Peopleseewhattheywanttosee(example:sportsma

5、tches)–Peopleexperiencecognitivedissonancewheretheyaremotivatedtoreduceoravoidpsychologicalinconsistencies,ofteninordertopromoteapositiveself-image(example:Canadianelections)Memorytricks•Memoryisnotasimplematterofinformationretrieval:–Itisreconstructive–I

6、tisvariableinintensity…•Withemotionplayingarole–Itispronetoself-servingdistortion(hindsightbias)•“Weknewitallalong”FramingEffectsWhichlineislonger?FramingEffects(2)PerceptionandmemoryareinfluencedbycontextorframePerceptionandtheFrame•Perceptionisnotjustse

7、eingwhat’sthere–butitisinfluencedbytheframe:–Contrasteffect:sportspresenterlookstallerwheninterviewingjockeythanbasketballplayer–Haloeffects:Someonewholikesoneoutstandingattributeofanindividuallikeseverythingabouttheindividual(example:toddlersattributebet

8、terqualitiestogoodlookingfriends)–Primacyvs.recencyeffects–Primacy:whatcomesfirstwilldominate–Recency:whatcomeslasthasagreaterimpactHeuristics•Heuristicsorrules-of-thumb:decision-makingshortcuts.•Necessarybecausethe