strikethree

Readings 7-13 basically were prepared by someone else on this forum. I do not remember his/her name so cannot give credit. These are just bullet points of the major themes. I am still in the process of preparing these stuff so you need to wait for the whole of it. Instead of mailing I am posting them here.

Reading 7: Heuristic-Driven Bias: The First Theme
Representativeness
? Winner-loser effect (past winners become today’s losers)
? Gambler’s fallacy – think law of averages apply to small samples (i.e. it’s ‘due’)
Overconfidence
Anchoring-and-adjustment (Conservatism)
? React too conservatively to new information (with respect to original forecasts)
Aversion to ambiguity

Reading 8: Frame Dependence: The Second Theme
Loss Aversion – ‘get evenitis’
Mental accounting (using separate mental accounts)
Hedonic editing – framing things in a ‘better’ way
? House-money effect - more likely to gamble when up
? Prefer dividends as ‘silver lining’ (frame editing)
Self-control – controlling emotions
? “Don’t dip into capital” – OK to spend dividends … another type of hedonic editing
Regret
Money Illusion – people usually consider nominal, not REAL returns

Reading 9: Inefficient Markets: The Third Theme
Representativeness- Stereotypes
Anchoring-and-adjustment- Earnings surprises
Frame dependence-People stay away from bearish market and jump in bullish markets
Overconfidence-Unjustified bets and greater trading

[Myopic loss aversion – reluctance to hold stocks due to loss (typically a result of too short horizon), also due to too frequent monitoring]

Reading 10: Portfolios, Pyramids, Emotions, and Biases
Heuristic Biases and Portfolio Selection:
Optimism
Overconfidence – excess trading, think they have higher skills, and suffer from illusion of control
Failure to diversify – primitive understand of diversification requirements
Na?ve diversification – 1/n diversification, 50/50 stock bonds
Familiarity/Home bias

Reading 11: Investment Decision Making in Defined Contribution Pensnsion Plans
Biases in defined contribution plans:
Bounded rationality – limits to efficient decision-making (heuristics)
Status quo bias – do nothing or remain with original choices
Myopic loss aversion – try to avoid s/t loss despite long horizon of plan
1/n diversification
Endorsement effect

Reading 12: Folly of forecasting
Forecaster defense mechanisms
If then
Ceteris Paribus
Almost right
Has not happened yet
Single Predictor

Reading 13: Alpha Hununters and Beta Grazers
Chronic Inefficiencies:
Process vs Outcome
Convoy Behavaiour
Bayesian Rigidity/Rigid views
Price Target Revision
Ebullience cycle