Asked by Keshawn Johnson on Jun 09, 2024
Verified
Problems with behavioral finance include:
I. The behavioralists tell us nothing about how to exploit any irrationality.
II. The implications of behavioral patterns are inconsistent from case to case, sometimes suggesting overreaction, sometimes underreaction.
III. As with technical trading rules, behavioralists can always find some pattern in past data that supports a behavioralist trait.
A) I only
B) II only
C) I and III only
D) I, II, and III
Behavioral Finance
A field of study that examines psychological influences and biases on the financial behaviors of investors and financial markets.
Irrationality
A decision-making process that deviates from logic or reason.
- Understand the concept of behavioral biases and how they influence investment decisions.
Verified Answer
DA
Denovan Ambraal NovyJun 09, 2024
Final Answer :
D
Explanation :
Behavioral finance critics argue that it does not provide clear strategies to exploit irrational behaviors (I), its implications can be inconsistent, suggesting both overreaction and underreaction in different scenarios (II), and like technical analysis, it can retrospectively find patterns that fit a theory, which may not be predictive or useful for future decision-making (III).
Learning Objectives
- Understand the concept of behavioral biases and how they influence investment decisions.