FINAMANA7397.docVIP

FINA/MANA 7397 Behavioral Finance Class Notes and Problems Instructor: Dale Rude Summer I, 2008 TABLE OF CONTENTS Setting the Stage 4 Some Generic Types of Decision Strategies 7 Lens Model: Overview 9 Lens Model: Five Steps to Making Accurate Judgments 12 Lens Model: Four Measures of Judgment Accuracy 12 Lens Model: A Step by Step Method for Interpreting 13 Policy Capturing Results from a Lens Model Analysis Lens Model: Interpreting a Lens Model Table with One Cue 14 Lens Model: Interpretation of Sample Lens Model Table with One Cue 15 Lens Model: Interpreting a Lens Model Table with Two or More Cues 17 Lens Model: Interpretation of Sample Lens Model Table with Two or More Cues 18 Lens Model: Ascertaining Relationship between Cues and Outcome 20 Lens Model: The Lens Model Equation 20 Lens Model: Glossary 21 Background for the Lens Model: Statistics Made Easy 23 Investment Primer: Forms of Business Ownership 38 Investment Primer: Mutual Funds 40 Investment Primer: Market Indices 43 Investment Primer: Index Funds 44 Investment Primer: The Efficient Market Hypothesis 47 Rationalist vs. Behavioralist Paradigms 52 Are Investors Rational? A Look at US Literacy 59 Perception 65 Operant Learning Theory 66 Heuristics and Biases 67 Prospect Theory 69 Winners Curse 73 Nonrational Escalation of Commitment 74 Expertise: Analysis Intuition 76 Setting the Stage: Introductory Problems 1. A major purpose of this course is to enable you to manipulate your work environment and the people within it more effectively. Is it ethical to manipulate your work environment and the people within it? 2. The following quote is from Managing by Harold Geneen (former CEO of ITT). Theory G: You cannot run a business, or anything e