Asked by Peter Shibia on Jul 06, 2024
Verified
Conventional finance theory assumes investors are ________, and behavioral finance assumes investors are ________.
A) rational; irrational
B) irrational; rational
C) greedy; philanthropic
D) philanthropic; greedy
Conventional Finance Theory
A framework in economics that explains the behavior of financial markets, including the dynamics of assets and securities pricing, investment portfolios, and market mechanisms.
Behavioral Finance
An area of study focusing on how psychological influences and biases affect the financial behaviors of investors and financial markets.
Rational
Characterized by clear, logical thinking, often referring to decision-making that maximizes benefit.
- Compare and contrast conventional finance theory with behavioral finance assumptions about investor rationality.
Verified Answer
AM
Amber MorrisJul 10, 2024
Final Answer :
A
Explanation :
Conventional finance theory assumes that investors are rational and make decisions based on logical and objective analysis of available information. Behavioral finance, on the other hand, recognizes that investors are subject to cognitive biases and emotional influences that can result in irrational decision-making.
Learning Objectives
- Compare and contrast conventional finance theory with behavioral finance assumptions about investor rationality.