Literature review on behavioral finance theory

The requirement is to find 5 qualitative studies, 5 Quantitative studies and one mixed method study. I need to have the reference list right away in APA format. The topic is listed above-again the review is the methodology.

Literature review on behavioral finance theory

They found that the amount participants required as compensation for the mug once their ownership of the mug had been established "willingness to accept" was approximately twice as high as the amount they were willing to pay to acquire the mug "willingness to pay".

Other examples of the endowment effect include work by Ziv Carmon and Dan Ariely[5] who found that participants' hypothetical selling price willingness to accept or WTA for NCAA final four tournament tickets were 14 times higher than their hypothetical buying price willingness to pay or WTP.

Also, work by Hossain and List Working Paper discussed in the Economist in[6] showed that workers worked harder to maintain ownership of a provisional awarded bonus than they did for a bonus framed as a potential yet-to-be-awarded gain.


In addition to these examples, the endowment effect has been observed using different goods [7] in a wide range of different populations, including children, [8] great apes, [9] and new world monkeys.

For most things are differently valued by those who have them and by those who wish to get them: However, these claims have been disputed and other researchers claim that ownership attribution of the item to self and not loss aversion is the key to this phenomenon.

In line with prospect theory Tversky and Kahneman, [15]changes that are framed as losses are weighed more heavily than are the changes framed as gains. Figure 1 presents this explanation in graphical form. Thus the difference between B-A and C-A would account for the endowment effect.

Prospect Theory and the Endowment Effect Neoclassical explanations[ edit ] Hanemann[16] develops a neoclassical explanation for the endowment effect, accounting for the effect without invoking prospect theory.

Figure 2 presents this explanation in graphical form.

Literature review on behavioral finance theory

In the figure, two indifference curves for a particular good X and wealth are given. Consider an individual who is given goods X such they move from point A where they have X0 of good X to point B where they have the same wealth and X1 of good X.

Their WTP represented by the vertical distance from B to C, because after giving up that amount of wealth the individual is indifferent about being at A or C. Now consider an individual who gives up goods such that they move from B to A. Their WTA represented by the larger vertical distance from A to D because after receiving that much wealth they are indifferent about either being at point B or D.

However, Kahneman, Knetsch, and Thaler [18] find that the endowment effect continues even when wealth effects are fully controlled for. Work by Morewedge, Shu, Gilbert and Wilson [14] provides support for these theories, as does work by Maddux et al.

Conference call for papers from Review of Behavioral Finance

The good is incorporated into the self-concept of the owner, becoming part of her identity and imbuing it with attributes related to her self-concept. Self-associations may take the form of an emotional attachment to the good.

Once an attachment has formed, the potential loss of the good is perceived as a threat to the self. A second route by which ownership may increase value is through a self-referential memory effect SRE — the better encoding and recollection of stimuli associated with the self-concept.

From Ef” cient Markets Theory to Behavioral Finance Robert J. Shiller A cademic ” nance has evolved a long way from the days when the ef” cient. Please, write a literature review to highlight how organizational behavioral theories apply to professional practice. The literature review should provide critical analysis and synthesis of the material. Remember that the best. Behavioral Corporate Finance: traditional rationality assumptions with potentially more realistic behavioral assumptions. The literature is divided into two general approaches, and we organize the survey around them. we review the basic theoretical frameworks, the main empirical challenges.

The self-referential memory effect for owned goods may act thus as an endogenous framing effect. During a transaction, attributes of a good may be more accessible to its owners than are other attributes of the transaction.

Behavioral finance: insights from experiments I: theory and financial markets

Because most goods have more positive than negative features, this accessibility bias should result in owners more positively evaluating their goods than do non-owners.

Frames evoked by acquisition of a good e.IT IS ILLEGAL TO REPRODUCE THIS ARTICLE IN ANY FORMAT 16 MODERN PORTFOLIO THEORY AND BEHAVIORAL FINANCE FALL Traditional finance assumes that we are rational, while behavioral finance simply assumes we are normal.

Behavioral Finance is a growing approach that sparks fertile and innovative field research in finance, with potential for development of new management tools, whether in the area of corporate finance . Using academic studies and financial literature from over 40 researchers, I investigate if behavioral finance causes investors to not always act in a rational manner.

In this thesis, I review the literature on investor behavior and outline the situational factors that contribute to investment decisions that are not consistent with the theory of rational expectations. Abstract. 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 .

Behavioral finance theories assume that overconfidence bias is the reason behind this According to the traditional finance theory, a market is efficient when a large number of Literature Review Examining the behavior of financial markets and its’ players is of great interest and.

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Literature review on behavioral finance theory
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