Behavioral Economics
This bias makes people fear losses more than they value equivalent gains.
Loss aversion
This statement summarizes a company’s revenues, expenses, and profits over a period.
the income statement
This economic theory emphasizes government intervention to stabilize the economy.
Keynesian economics
These securities represent ownership in a compan
stocks
This Scottish economist wrote The Wealth of Nations.
Adam Smith
Investors following the crowd instead of their own analysis are exhibiting this behavior.
herd behavior
The total value of a company’s equity and debt financing is called this.
capital structure
According to this hypothesis, all market information is reflected in asset prices instantly.
Efficient Market Hypothesis (EMH)
Bonds that protect investors from inflation are known as these.
TIPS (Treasury Inflation-Protected Securities)
This economist advocated for government spending to combat recessions.
John Maynard Keynes
This bias leads people to give too much weight to information that confirms their existing beliefs.
confirmation bias
This metric calculates the present value of a project’s future cash flows minus initial investment.
Net Present Value (NPV)
This theory argues that inflation is caused primarily by excessive growth in the money supply.
Monetarism
This derivative gives the holder the right, but not the obligation, to buy or sell an asset at a predetermined price.
Options
He argued that free markets are self-regulating and should not be interfered with.
Milton Friedman
When people irrationally believe past random events affect future outcomes, they show this fallacy.
gambler’s fallacy
A ratio measuring a company’s ability to cover its short-term obligations is called this.
current ratio
Game theory
These pooled financial products contain mortgages or loans divided into tranches with different risk levels.
CDOs (Collateralized Debt Obligations)
This German philosopher co-wrote The Communist Manifesto and analyzed capitalism’s class struggle
Karl Marx
This effect occurs when investors stick with a losing investment too long because they cannot admit a mistake.
disposition effect
This type of corporate action combines two companies into one, often requiring strategic financial evaluation.
merger or acquisition
This paradox describes a situation where people’s risk-averse behavior in individual choices leads to suboptimal outcomes for the group.
St. Petersburg paradox (or collective action problem)
A strategy of simultaneously buying and selling related securities to profit from price discrepancies is called this.
arbitrage
He introduced the concept of “comparative advantage” in international trade.
David Ricardo