Underlying assumptions of this theory are that people have complete information about possible outcomes, their likelihoods, and can evaluate their preferences across different expected options.
What is the “expected utility theory?”
100
In Expected Utility Theory, investors base outcome on final position. Prospect Theory differs in that investors base outcomes on this.
What is wealth?
100
He won the Nobel Prize in economics in 1990 for developing the theory of portfolio choice.
Who is Harry Markowtiz?
100
This heuristic advises investors to satisfy profits instead of maximizing.
What is Satisficing?
100
This adjective is used to describe a useful rule of thumb that people can use for problem solving.
What is Heuristic?
200
Mathematical antonyms are used to describe this behavioral finance perspective.
What is the Prospect Theory Value Function?
200
Imagine you are offered to roll a die. If you roll numbers 1-3, you win $1,000. If you roll numbers 4-6, you must pay $700. Electing not to roll the die based on the potential outcomes shows this characteristic.
What is Loss Aversion?
200
Risk-Free assets allow the investor to identify which risky portfolio offers the best return for the risk taken.
What is optimal risky portfolio?
200
This nobel laureate stated that people choose the course of action that satisfies their most important needs, but the choice may not be optimal.
Who is Herbert Simon?
200
A heuristic-based decision can be efficient and optional depending on this.
What is "environment?"
300
A person with these preferences would rather have the expected value of a gamble than the gamble itself.
What is a risk averter?
300
In prospect theory, probabilities are transformed into this weighting function.
What are decision weights?
300
William Sharpe won the Nobel Prize in Economics for this one variable model which describes the relationship between risk and expected return and that is used in the pricing of risky securities.
What is Capital Asset Pricing Model (CAPM)?
300
In this finance approach, the goal is to create a portfolio with the maximum return for a given level of risk?
What is Traditional Finance?
300
This behavioral economic theory describes the way people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known.