Behavioural Economics

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Information about Behavioural Economics
Business & Mgmt

Published on February 19, 2014

Author: mattspaul



Slides from Rupesh Parikh's talk at Erevna in January 2014 on the topic of Behavioural Economics.

Masterclass by Rupesh Parikh

Would you rather: a) Receive £450 in cash now b) Have 50% chance of receiving £1000, but also 50% chance of receiving nothing

Would you rather: a) Lose £450 in cash now b) Have 50% chance of losing £1000, but also 50% chance of losing nothing

Are economists' assumptions good approximations of real people's behaviour?

Trader and Broker Reported abnormally large returns of 5.6% in 2008  $36bn transferred into his fund  SCAM  Collapse  

Run by Merton and Scholes  Nobel Prize winners for theory of market manoeuvres regarding US and Soviet bonds  Market did not act as empirical suggestions denoted  Bankruptcy 

Actuary / Quant Mathematical correlation theory (Gaussian Copula)  Assumed that market would function at all times  Aggregate changed – but the model didn’t  Collapse  

Decisions often made out of a spontaneous urge to react  Cornerstone of economic theory is consumer confidence  The key, therefore, is to revive confidence in markets.  This should not tip over to arrogance! 

Economic Froth driven by human behaviour acting irrationally  Bubbles are created – don’t match the law of demand! 

   Greed ? Is it an animal spirit? Was it rational to start selling sub-prime? Was it a good idea invest in a bubble based on other people’s investment?

 _6tA

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