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A Literature Review of Risk Perception Studies in Behavioral Finance: The Emerging Issues by Victor Ricciardi :: SSRN

A Literature Review of Risk Perception Studies in Behavioral Finance: The Emerging Issues by Victor Ricciardi :: SSRN | Bounded Rationality and Beyond | Scoop.it
This is a PDF file of 'A Literature Review of Risk Perception Studies in Behavioral Finance: The Emerging Issues' slides from a presentation at the 25th Annual Meeting of the Society for the Advancement of Behavioral Economics (SABE) Conference hosted by New York University on May 15-18, 2007.

The topic of risk perception is a noteworthy theme within the behavioral finance literature that examines the decision making process of unsophisticated and expert investors. The risk perception literature has a strong historical academic foundation that entails various attributes associated with the notion of the interdisciplinary and multidisciplinary perspective across the different fields such as behavioral finance, behavioral accounting, and psychology. The previous narrative risk perception literature review by Ricciardi (2004) demonstrated that scholars in financial psychology (behavioral finance), behavioral economics, and behavioral accounting have investigated and tested over 150 unique accounting, financial, and investment proxy risk factors (e.g., beta, current ratio) and more than 100 behavioral risk characteristics (e.g., overconfidence, familiarity bias). This presentation is a preliminary discussion that builds on the research work of Ricciardi (2004, 2006) and Ricciardi (2008). This presentation disclosed, 'What are the emerging issues within the behavioral finance risk perception literature?' In particular, this presentation provided an emerging collection of hypotheses based on the various theories, concepts, and themes from the earlier narrative literature review by Ricciardi (2004) and the forthcoming book chapter in Ricciardi (2008).
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Stirling Behavioural Science Blog : Loss aversion in penalty shootouts

Stirling Behavioural Science Blog : Loss aversion in penalty shootouts | Bounded Rationality and Beyond | Scoop.it

Kahneman discusses this phenomenon in his book Thinking Fast and Slow in the context of golf, where loss aversion actually improves performance:

"Failing to make par is a loss, but missing a birdies putt is a foregone gain, not a loss. [Devin] Pope and [Maurice] Schweitzer reasoned from loss aversion that players would try a little harder when putting for par (to avoid a bogey) than when putting for a birdie. They analyzed more than 2.5 million putts in exquisite detail to test that prediction. They were right. Whether the putt was easy or hard, at every distance from the hole, the players were more successful when putting for par [i.e. avoiding a loss] than for a birdie [i.e. achieving a gain]. The difference in their rate of success when going for par (to avoid a bogey) or for a birdie was 3.6%. 

This difference is not trivial. Tiger Woods was one of the "participants" in their study. If in his best years Tiger Woods had managed to putt as well for birdies as he did for par, his average tournament score would have improved by one stroke and his earnings by almost $1 million per season."

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A Theory of Representative Behavior in the Dictator Game

Abstract: In this paper we present a model of representative behavior in the dictator game. Individuals have simultaneous and non-contradictory preferences over monetary payoffs, altruistic actions and equity concerns. We require that these behaviors must be aggregated and founded in principles of representativeness and empathy. The model results match closely the observed mean split and replicate other empirical regularities (for instance, higher stakes reduce the willingness to give). In addition, we connect representative behavior with an allocation rule built on psychological and behavioral arguments. An approach consistently neglected in this literature. Key words: Dictator Game, Behavioral Allocation Rules, Altruism, Equity Concerns, Empathy, Self-interest JEL classification

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The Human Brain Project - Human Brain Project

The Human Brain Project - Human Brain Project | Bounded Rationality and Beyond | Scoop.it

Understanding the human brain is one of the greatest challenges facing 21st century science. If we can rise to it, we can gain profound insights into what makes us human, build revolutionary computing technologies and develop new treatments for brain disorders. Today, for the first time, modern ICT has brought these goals within reach.

 

The members of the HBP are saddened by the open letter posted on neurofuture.eu on 7 July 2014, as we feel that it divides rather than unifies our efforts to understand the brain. However, we recognize that the signatories have important concerns about the project. Here we try to clarify some of the main issues they touch on. We also invite the signatories to discuss their concerns in a direct scientific exchange with scientists leading the HBP and its subprojects.

 
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Neuromarketing: Capitalism’s Mindfuck. Maybe.Critical-Theory.com

Neuromarketing: Capitalism’s Mindfuck. Maybe.Critical-Theory.com | Bounded Rationality and Beyond | Scoop.it
Marketers are always looking for new ways to get you to buy their useless shit. It's no surprise then that the average consumer receives, on average, over 10,000 selling messages a day. But marketing, which was once an art of intuition, guessing and half-assed test groups, is becoming notably creepier. Enter neuromarketing, a rapidly growing field of study in neuroscience and marketing. Neuromarketing is the terrifying intersection between neuroscience's continued exploration of the brain and advertising's lust to exploit said exploration for profit. Neuromarketers use brain scans and neuroimaging to figure out which of those 10,000 messages will actually make us buy shit without thinking or questioning. In short, it's like if "1984" and "They Live" had a baby and named it "exactly this." The emerging field began in 1997 with an article written by Wolfram Shultz on the physiology of prediction and reward. It was Schultz's work, in conjunction with other pioneering neuroscientists,
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Neurologia e Diritto: il caso del pedriata pedofilo Mattiello

Neurologia e Diritto: il caso del pedriata pedofilo Mattiello | Bounded Rationality and Beyond | Scoop.it

Certo non tutti i giudici sono ugualmente ben disposti ad accettare che il dibattimento si sposti su un terreno neuroscientifico, ma anche grazie alle Scuole organizzate dall'Associazione Europa per le Neuroscienze e il Diritto, di cui Santosuosso è presidente, i giuristi stanno cominciando a padroneggiare la materia. NON SOLO MOLECOLE.  Le sentenze che riconoscono il valore della prova neuroscientifica pongono infatti un problema di ordine politico più ampio: se una persona ha la mutazione MAOA, ed è quindi più probabile che agisca violentemente, in che modo può essere recuperato? «Il fattore genetico o neurofisiologico sono solo alcuni degli elementi in gioco, sono importanti perché ci aiutano a capire meglio, ma non esauriscono la personalità dell'imputato», sottolinea ancora Santosuosso: «Sono gli altri pezzi del puzzle su cui posiamo agire: la storia personale, l'educazione, l'ambiente in cui la persona è vissuta e vive. Agendo su questi i risultati si ottengono, con o senza variante genetica». 

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Ikea Effect

Michael I. Norton a, Daniel Mochon, Dan Ariely

Abstract
In four studies in which consumers assembled IKEA boxes, folded origami, and built sets of Legos, we demonstrate and investigate boundary conditions for the IKEA effect—the increase in valuation of self-made products. Participants saw their amateurish creations as similar in value to experts' creations, and expected others to share their opinions. We show that labor leads to love only when labor results in successful completion of tasks; when participants built and then destroyed their creations, or failed to complete them, the IKEA effect dissipated. Finally, we show that labor increases valuation for both “do-it-yourselfers” and novices.

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‘Rational expectations’ — nonsense on stilts

‘Rational expectations’ — nonsense on stilts | Bounded Rationality and Beyond | Scoop.it

Assumptions in scientific theories/models are often based on (mathematical) tractability (and so necessarily simplifying) and used for more or less self-evidently necessary theoretical consistency reasons. But one should also remember that assumptions are selected for a specific purpose, and so the arguments (in economics shamelessly often totally non-existent) put forward for having selected a specific set of assumptions, have to be judged against that background to check if they are warranted.

This, however, only shrinks the assumptions set minimally – it is still necessary to decide on which assumptions are innocuous and which are harmful, and what constitutes interesting/important assumptions from an ontological & epistemological point of view (explanation, understanding, prediction). Especially so if you intend to refer your theories/models to a specific target system — preferably the real world. To do this one should start by applying a Real World Filter in the form of aSmell Test: Is the theory/model reasonable given what we know about the real world? If not, why should we care about it? If not – we shouldn’t apply it (remember time is limited and economics is a science on scarcity & optimization …)

 #neuroeconomy #Behavioraleconomics #neuroeconomia#boundedrationality #nudge 

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Are You Resilient? - Issue 15: Turbulence - Nautilus

Are You Resilient? - Issue 15: Turbulence - Nautilus | Bounded Rationality and Beyond | Scoop.it

Most of us experience at least one traumatic event in our lives, ranging from bankruptcy to violence. Even the luckiest will stumble upon hard times, such as heartbreak or the loss of a loved one. Yet humans are resilient, like a soft metal that doesn’t shatter when bent. We may suffer mild anxiety or depression for a short period following tragedy, but we usually carry on after the pain subsides, sometimes even wiser and nimbler than before.

It’s handy to know how resilient you are before turbulent times hit so that you can learn how to recover faster. We’ve put together a research-informed but non-diagnostic quiz to help. As you answer each question, the next one comes into view. Read on after the test for tips on how to develop and enhance traits associated with people who function well despite adversity.

  

 

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Narrative and deliberative instauration: The use of narrative as process and artefact in the social construction of institutions

Abstract: Patient Safety is a global institution in the field largely assumed to have emerged following the publication of To Err Is Human by the Institute of Medicine in 1999. In this paper we demonstrate that Patient Safety has been constructed as an institution separately in the practice of anaesthesia since 1954 and in hospitalised care since 1964. The publication of To Err was, in fact, only one of a number of later field configuring events. We use Bruner's (1991) theory of narrative to frame the institution building process which we term deliberative instauration in recognition of the historic literature on the subject. We further link the process of institution building to Vygotsky's theory of social mediation and the use of artefacts in relation to the object of intended action. We conclude that a narrative can be understood as both an artefact and a process used in the social construction of institutions by professional psychological collectives (in this case physicians).

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Is Mainstream Finance Theory Adrift?

Is Mainstream Finance Theory Adrift? | Bounded Rationality and Beyond | Scoop.it
An important new monograph from the CFA Institute Research Foundation explores a fundamental question in the wake of the global financial crisis: Has finance theory failed investors?

US President Harry Truman once joked that he wanted to find a one-armed economist who wouldn’t be able to hedge every opinion by saying “On the other hand. . . .” In the years following the 2007–09 financial crisis, countless policymakers and investors could well understand Truman’s frustration with equivocating experts. Definitive answers were rare. Fundamental precepts — from macroeconomics to monetary policy to Modern Portfolio Theory — were shaken or even shattered. At times, the loss of conviction and consensus appears to have culminated not in a revolution of understanding but rather in the destruction of any pretense of understanding.

By way of an example, one need look no further than the concept of a “bubble.” To most observers and market participants, the loud popping sound produced by Lehman’s collapse in 2008 and the gummy substance covering the face of the global financial system would seem to be sufficient evidence of a burst bubble. According to mainstream finance theory, however, bubbles are by definition impossible. The very idea of a bubble is nonsensical. In 2010, Eugene Fama, one of the primary architects of the efficient markets hypothesis (EMH), went so far as to say, “I don’t even know what a bubble means.”

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How The Brain Processes The Emotions — PsyBlog

How The Brain Processes The Emotions — PsyBlog | Bounded Rationality and Beyond | Scoop.it
Tastes good? Despite how individual our emotions feel to us, the brain processes them in a remarkably similar way.

The brain translates emotions into a standard code that’s similar across people, a new study finds. While happiness and sadness might feel quite different to us, the brain actually represents these emotions in a remarkably similar way (Cornell University neuroscientist Adam Anderson, senior author of the study, explains: “We discovered that fine-grained patterns of neural activity within the orbitofrontal cortex, an area of the brain associated with emotional processing, act as a neural code which captures an individual’s subjective feeling. Population coding of affect across stimuli, modalities and individuals.” This finding contrasts to the established view which is that there are specific, separate regions in the brain for positive and negative emotions.

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Shared decisions benefit next generations

Shared decisions benefit next generations | Bounded Rationality and Beyond | Scoop.it

A controlled voting system can help a community manage resources sustainably so that future generations can still enjoy them, according to a study published today in Nature1 and re-enacted in this Nature Video. Having empirical support for the long-held view that people are mostly cooperative could help to design better public policies aimed at preserving shared resources, such as clean air or fish stocks.

There’s plenty of evidence to suggest that people are not purely self-interested. But although economists have long studied how people cooperate in groups, they have not looked specifically at whether individuals are happy to share resources with future generations, who cannot return the favour

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The Supreme Court declares the stock market inefficient

The Supreme Court declares the stock market inefficient | Bounded Rationality and Beyond | Scoop.it

Back to the Future

As you'll know the Psy-Fi Blog spends a lot of time pointing out to a (largely disinterested) audience of investors that there's a huge amount of psychological research out there that we can use to guide our investing behavior. In fact there are vast reams of the stuff, far too much for me to ever even summarize, let alone analyse. But as we saw in Behavioral Law and Disorder[1] the Supreme Court, like most investors, has failed to take account of this by requiring investment professionals to benchmark themselves against the Efficient Markets Hypothesis, a failed meme if there ever was one.

Well, no more. The Supreme Court of the United States (aka SCOTUS) has donned kipper ties and white suits and boogied into the late-mid-twentieth century with a ruling that markets can no longer be regarded as entirely efficient. Somewhat surprisingly, however, the justices have based their findings not on the wealth of research that's accumulated over half a century but on an op-ed piece in the New York Times. It makes you wonder why you bother.

- See more at: http://www.stockopedia.com/content/the-supreme-court-declares-the-stock-market-inefficient-84598/#sthash.CuzPlAZw.dpuf

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Social norms, morals and self-interest as determinants of pro-environment behaviour

Abstract: This paper considers the role which selfish, moral and social incentives and pressures play in explaining the extent to which stated choices over pro-environment behaviours vary across individuals. The empirical context is choices over household waste contracts and recycling actions in Poland. A theoretical model is used to show how cost-based motives and the desire for a positive self- and social image combine to determine the utility from alternative choices of recycling behaviour. We then describe a discrete choice experiment designed to empirically investigate the effects such drivers have on stated choices. Using a latent class model, we distinguish three types of individual who are described as duty-orientated recyclers, budget recyclers and homo oeconomicus. These groups vary in their preferences for how frequently waste is collected, and the number of categories into which household waste must be recycled. Our results have implications for the design of future policies aimed at improving participation in recycling schemes.

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Cyberloafing at Work Makes You More Productive — PsyBlog

Cyberloafing at Work Makes You More Productive — PsyBlog | Bounded Rationality and Beyond | Scoop.it

Surfing the web at work for leisure makes you 9% more productive, a new study finds. Now there’s something positive to tell your boss the next time you’re caught on Facebook or YouTube at work. A new study finds that taking a break at work to browse the internet can boost your performance at work (Coker, 2014).

Dr. Brent Coker of Melbourne University was inspired to carry out the research after he forwarded a YouTube video to his sister.

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The scientific illusion of ‘modern’ macroeconomics

The scientific illusion of ‘modern’ macroeconomics | Bounded Rationality and Beyond | Scoop.it
from Lars Syll Deductivist modeling endeavours and an overly simplistic use of statistical and econometric tools are sure signs of the explanatory hubris that still haunts neoclassical mainstream

economics.

In a recent interview Robert Lucas says he now believes that

the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.

So, according to Lucas, changes in tastes and technologies should be able to explain the main fluctuations in e.g. the unemployment that we have seen during the last six or seven decades. But really — not even a Nobel laureate could in his wildest imagination come up with any warranted and justified explanation solely based on changes in tastes and technologies.

The Chicago übereconomist is simply wrong. But how do we protect ourselves from this kind of scientific nonsense? In The Scientific Illusion in Empirical Macroeconomics Larry Summers has a suggestion well worth considering — not the least since it makes it easier to understand how mainstream neoclassical economics actively has contributed to causing today’s economic crisis rather than to solving it

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UN MODELLO NEUROSCIENTIFICO DEL GIUDIZIO NORMATIVO NEL DIRITTO E NELLA GIUSTIZIA

Abstract
Gli odierni sviluppi delle scienze cognitive stanno fornendo una nuova comprensione della natura del giudizio normativo. Le analisi tradizionali in discipline come la filosofia, la religione, la psicologia e l’economia discordano circa il ruolo e l’utilità da attribuire alle intuizioni ed alle emozioni nel giudizio di colpevolezza. La psicologia cognitiva e la neurobiologia aggiungono nuovi strumenti e metodi di studio riguardo agli interrogativi concernenti il giudizio normativo. È acquisizione recente il consenso all’ipotesi che riconosce un importante ruolo alle emozioni ed alle intuizioni, e congettura che il giudizio morale è un processo distribuito nel cervello. Testare questo modello con studi sulle lesioni e con metodiche di scansione ha portato a collegare un insieme di regioni del cervello a questo giudizio, inclusa la corteccia prefrontale ventromediale, la corteccia orbitofrontale, la corteccia cingolata posteriore, ed il solco temporale posteriore superiore. Modelli migliori sulle emozioni e sulle
intuizioni aiuteranno a fornire un’ulteriore spiegazione dei processi coinvolti. La ricerca applicata al diritto ed alla giustizia appare meno sviluppata. Proponiamo in questo studio un modello di ‘law in the brain’ nel quale il diritto può reclutare un maggior numero di diverse sorgenti d’informazione e percorsi d’elaborazione, rispetto alla risposta morale intuitiva così com’è stata studiata fino ad ora.
Proponiamo ipotesi specifiche e linee di ricerca ulteriore che possono aiutare a testare quest’approccio.

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The Sociological Semantics of Complex Systems

The Sociological Semantics of Complex Systems | Bounded Rationality and Beyond | Scoop.it
Abstract The concept of complex systems is one of the most common and abused by sociologicalsemantics. Both complexity and system are epistemological terms which contribute toreshape the scientific research design and conceptual frames. Nevertheless, complexity andsystem are often used by everyday life in several misleading ways: for example complex isoften meant by common sense as a synonym for difficult, complicate, hard to understand,obscure and system is used by common sense as a synonym of “way “ or mechanism and is often geographically rooted (the Italian political system, for instance). Common sensegenerates misleading uses and affects public opinion about the understanding of science. This paper is not focused on the history and evolution of the concept of complex system it rather isaimed at reconstructing this concept in the current sociological depistemology to let complexsystems fully express their revolutionary and reconfigurational powers for social and politicalscience research
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Dan Ariely » Blog Archive Sports and Loss Aversion «

Dan Ariely » Blog Archive Sports and Loss Aversion « | Bounded Rationality and Beyond | Scoop.it

This analysis by the way has another interesting implication — it suggests that the value of being die hard fans is higher for games that take more time, where the fans get to enjoy the process for longer. Maybe this is why so many sports take breaks for time outs and advertisements breaks — they are not only doing it to increase their revenues, but they are also trying to give us, the fans, more time to enjoy the whole experience.

#neuroeconomy #neuroscience
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Global Brain: Web as Self-organizing Distributed Intelligence - Francis Heylighen - YouTube

Summer School in cognitive Science: Web Science and the Mind Institut des sciences cognitives, UQAM, Montréal, Canada http://www.summer14.isc.uqam.ca/

OVERVIEW: Distributed intelligence is an ability to solve problems and process information that is not localized inside a single person or computer, but that emerges from the coordinated interactions between a large number of people and their technological extensions. The Internet and in particular the World-Wide Web form a nearly ideal substrate for the emergence of a distributed intelligence that spans the planet, integrating the knowledge, skills and intuitions of billions of people supported by billions of information-processing devices. This intelligence becomes increasingly powerful through a process of self-organization in which people and devices selectively reinforce useful links, while rejecting useless ones. This process can be modeled mathematically and computationally by representing individuals and devices as agents, connected by a weighted directed network along which "challenges" propagate. Challenges represent problems, opportunities or questions that must be processed by the agents to extract benefits and avoid penalties. Link weights are increased whenever agents extract benefit from the challenges propagated along it. My research group is developing such a large-scale simulation environment in order to better understand how the web may boost our collective intelligence. The anticipated outcome of that process is a "global brain", i.e. a nervous system for the planet that would be able to tackle both global and personal problems..

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Measuring ambiguity aversion: A systematic experimental approach

Abstract: This paper provides a systematic analysis of individual attitudes towards ambiguity, based on laboratory experiments. The design of the analysis allows to capture individual behavior across various levels of ambiguity, ranging from low to high. Attitudes towards risk and attitudes towards ambiguity are disentangled, providing pure measures of ambiguity aversion. Ambiguity aversion is captured in several ways, i.e. as a discount factor net of a risk premium, and as an estimated parameter in a generalized utility function. We find that ambiguity aversion varies across individuals, and with the level of ambiguity, being most prominent for intermediate levels. Around one third of subjects show no aversion, one third show maximum aversion, and one third show intermediate levels of ambiguity aversion, while there is almost no ambiguity seeking. While most theoretical work on ambiguity builds on maxmin expected utility, our results provide evidence that MEU does not adequately capture individual attitudes towards ambiguity for the majority of individuals. Instead, our results support models that allow for intermediate levels of ambiguity aversion. Moreover, we find risk aversion to be statistically unrelated to ambiguity aversion on average. Taken together, the results support the view that ambiguity is an important and distinct argument in decision making under uncertainty. --

 
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Solving social problems with a nudge

Solving social problems with a nudge | Bounded Rationality and Beyond | Scoop.it
MacArthur winner Sendhil Mullainathan uses the lens of behavioral economics to study a tricky set of social problems -- those we know how to solve, but don't. We know how to reduce child deaths due to diarrhea, how to prevent diabetes-related blindness and how to implement solar-cell technology ... yet somehow, we don't or can't. Why?
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Raising the Price of Talk: An Experimental Analysis of Transparent Leadership

Abstract: Does transparent leadership promote cooperative groups? We address this issue using a public goods experiment with exogenously selected leaders who are able to send non-binding contribution suggestions to the group. To investigate the effect of transparency in this setting we vary the ease with which a leader’s actions are known by the group. We find leaders’ suggestions encourage cooperation in all treatments, but that both leaders and their group members are more likely to follow leaders’ recommendations when institutions are transparent so that non-leaders can easily see what the leader does. Consequently, transparency leads to significantly more cooperation, higher group earnings and reduced variation in contributions among group members. 

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Buddhist Economics: How to Stop Prioritizing Goods Over People and Consumption Over Creative Activity

Buddhist Economics: How to Stop Prioritizing Goods Over People and Consumption Over Creative Activity | Bounded Rationality and Beyond | Scoop.it

“Work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.”

Much has been said about the difference between money and wealth and how we, as individuals, can make more of the latter, but the divergence between the two is arguably even more important the larger scale of nations and the global economy. What does it really mean to create wealth for people — for humanity — as opposed to money for governments and corporations?

That’s precisely what the influential German-born British economist, statistician, Rhodes Scholar, and economic theorist E. F. Schumacher explores in his seminal 1973 book Small Is Beautiful: Economics as if People Mattered (public library) — a magnificent collection of essays at the intersection of economics, ethics, and environmental awareness, which earned Schumacher the prestigious Prix Européen de l’Essai Charles Veillon award and was deemed by The Times Literary Supplement one of the 100 most important books published since WWII. Sharing an ideological kinship with such influential minds as Tolstoy and Gandhi, Schumacher’s is a masterwork of intelligent counterculture, applying history’s deepest, most timeless wisdom to the most pressing issues of modern life in an effort to educate, elevate and enlighten.

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Behavioral Finance and Investor Governance by Lawrence A. Cunningham :: SSRN

Behavioral Finance and Investor Governance by Lawrence A. Cunningham :: SSRN | Bounded Rationality and Beyond | Scoop.it
Abstract:      
The efficient market hypothesis is a special case in finance. It explains only tiny fractions of observed phenomena. Perhaps its major contribution is a formal definition of an ideal market world, to which policy formulations may be directed and against which they can be measured. Indeed, it seems unlikely that the infirmities of market action ever will be so minuscule as to render the EMH more than a special case, though it may explain more in the future than it does now. However things evolve, during the evolutionary course the shackles of the EMH should be unloosed from corporate and investing culture. 

Part I presents behavioral finance as to how prices of stocks are formed?including a theoretical framework, empirical evidence, and psychological explanations. It integrates these materials into a model of market and investor behavior that can be used as a lens through which to analyze a wide variety of legal rules and policies bearing on market regulation and corporate governance. Part II is a series of prescriptions on the implications of this account relating to investor governance. It starts with a proposal to promote and expand investor education concerning the cognitive biases behavioral finance exposes. It proceeds to introduce and propose reforms in three critical areas of law and policy that this model impacts: (1) the market regulatory environment in which investors participate, including suitability and churning rules and policies relating to day trading, margin trading, and circuit breakers; (2) the legal duties of boards of directors in making capital allocation decisions such as equity offerings, dividend distributions and stock acquisitions; and (3) issues in corporate and securities litigation, principally the reliance requirement in securities fraud cases and the stock market exception to the appraisal remedy in cash out mergers. 

The efficient market idea turns out to be an aspiration worth pursuing, but one never likely to be realized. These proposals and prescriptions therefore operate both to push the reality toward the ideal and to deal with the gap that will persist. The article has a major public policy subtext too, at stake in the discussion of how prices are formed is the overarching question of capital allocation. Society is better off in terms of aggregate wealth when its resources are allocated to those best able to deploy them. Investors allocating capital based on rational calculation will produce that result, while those allocating based on sentiment will not. 

A word on methodology concludes the piece concerning where the piece fits in the bourgeoning legal literature drawing on behavioral social science. Throughout the intellectual history and genealogy of behavioral finance, legal scholars with a social science inclination have drawn on various strands of thought pioneered in these fields, importing the work of the cognitive psychologists, principally behavioral decision theory (which they call BDT). Concerns of the lead importers center on the usefulness of BDT to legal scholarship and policymaking generally include whether all it will do is furnish criticism of law and economics and fail to offer its own positive theories of law or normative prescriptions. Whatever power BDT has for legal scholarship in general, this Article should leave no doubt that it furnishes a positive theory of market behavior quite different than that of efficiency (imported and promoted by some law and economics devotees) and that this theory carries with it substantial normative implications for law and legal policy in the fields of securities and corporate law.
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