Risk aversion

the beginning of the course was risk aversion, which examined the way individuals make decisions when there is a possibility that one of the potential outcomes that can be achieved is undesirable when compared to a perceived better alternative. As explained from during lectures and readings, and illustrated by actual experiments, individuals are more likely to be risk averse or risk neutral than risk loving. While the concept of risk aversion influences nearly every important decision we, as humans, make in our life, it is not the sole factor in the decision making process of rational, self-interested individuals: ambiguity, or the aversion to it, is an equally if not greater influencer in the decision-making…

in harmful outcomes, and can keep us from experiencing a person for their true self. 2. Define Loss aversion. Explain how loss aversion connects to Captain Van Zanten. Loss aversion is our tendency to go to great lengths to avoid possible losses, and the fact that humans are twice as sensitive to losses as they are to gains. Captain Van Zanten experienced loss aversion to the extreme, and it cost him his life, along with 583 other people. The experienced pilot had a high reputation that he…

behaviour, when dealing with consumer theory. The two most prominent ‘irrational’ preferences are reference dependence, and loss aversion. Although it is a fairly recent development, there have still been many papers written about behavioural economics; such as ‘On the Value of Incumbency: Managerial Reference Points and Loss Aversion,’ ‘The Forward-Looking Competitive Firm under Uncertainty,’ and ‘A Dynamic Model of Investment and Endogenous Growth.’ What connects the three of these papers is…

psychology and economics making it easier to discern the motive behind consumer behavior. One of Kahneman’s most famous theories that essentially won him the Nobel prize in economics is prospect theory and that of loss aversion. Kahneman, along with Amos Tversky developed this theory when studying how people react to gambles. To Econs the expected utility theory and rational choice guided the outcomes of the decision process regarding a gamble. Expected utility theory explains how Econs…

Belrose Summary Belrose is known locally as The Forest because of its lush greenery and proximity to two national parks and leafy landscape. The centre of Sydney is a mere 19 kilometres away, making the work or play commute easy by vehicle or bus. When the locals aren’t working in the city, they are spending time with their families in one of the lush parks or playgrounds. Local retirees love this pristine little paradise where they can relax, enjoy retirement, play golf, and watch the local…

1997, Bickell et al., 1999, Madden et al., 1999) ranging from animal behavior to drug addict’s risk evaluation. For this paper in particular, hyperbolic discounting plays a major role, because it underlies how people make decisions about risk, and can be motivated by environmental cues and psychological variables like peer influence. Allan et al. (2009) suggests this after they proved that a person may correctly evaluate the cost of poor eating by subscribing to a diet, but will most likely…

2. Knowledge about variation 3. Theory of knowledge 4. Psychology The rest of the paper is organized in the following way: Section 2 provides information on Prospect Theory and System of Profound Knowledge. Section 3 discusses how “Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes” exhibits Profound Knowledge. Section 4 confers to the learning from analysis and in section 5 end the paper with the conclusion. 2.1. Prospect Theory Prospect theory…

“Adolescents’ risk-taking behavior is driven by tolerance ambiguity” validates the notion that adolescents are more likely to take risks than adults. Directed by head researcher and postdoctoral New York University student Agnieszka Tymula, the study goes as far as to claim that teenagers have about double the risk of death compared to that of pre-adolescents. It was only recently, however, that researchers began to understand the intricacies of the adolescent brain and its correlation with…

portfolio theory deals with the risk and value of portfolio instead of individual securities, which is known as Markowitz portfolio theory that is suggested by Harry Markowitz in his article “Portfolio selection” in the Journal of Finance. Markowitz portfolio theory basically helps in making optimum portfolio by interpreting, and evaluating risk and return of different risky assets. Basically, the portfolio theory is all about analyzing the balance in between the minimizing risk and maximizing…

a less risky option, or be more risk-averse, when the course of action is presented positively (gain), and tend to choose a more risky option, be more risk-seeking, when the course of action is presented negatively (loss). In other words, framing the outcome of a decision problem differently shifts a decision maker’s choice from risk-averse to risk-seeking. However, one limitation is that they failed to consider other factors that could influence their choice,…