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Emotions, Bayesian Inference, and Financial Decision Making

Salzman, Diego ; Trifan, Emanuela :
Emotions, Bayesian Inference, and Financial Decision Making.
[Online-Edition: http://econstor.eu/bitstream/10419/32092/1/511221452.PDF]
In: Darmstadt Discussion Papers in Economics , 166 . Darmstadt
[Report], (2006)

Offizielle URL: http://econstor.eu/bitstream/10419/32092/1/511221452.PDF

Kurzbeschreibung (Abstract)

This paper presents a model in which rational and emotional investors are compelled to make decisions under uncertainty in order to ensure their survival. Using a neurofinancial setting, we show that, when different investor types fight for market capital, emotional traders tend not only to influence prices but also to have a much more developed adaptive mechanism than their rational peers, in spite of their apparently simplistic demand strategy and distorted revision of beliefs. Our results imply that prices in financial markets could be seen more accurately as a thermometer of the market mood and emotions rather than as simple informative signals as stated in traditional financial theory.

Typ des Eintrags: Report
Erschienen: 2006
Autor(en): Salzman, Diego ; Trifan, Emanuela
Titel: Emotions, Bayesian Inference, and Financial Decision Making
Sprache: Englisch
Kurzbeschreibung (Abstract):

This paper presents a model in which rational and emotional investors are compelled to make decisions under uncertainty in order to ensure their survival. Using a neurofinancial setting, we show that, when different investor types fight for market capital, emotional traders tend not only to influence prices but also to have a much more developed adaptive mechanism than their rational peers, in spite of their apparently simplistic demand strategy and distorted revision of beliefs. Our results imply that prices in financial markets could be seen more accurately as a thermometer of the market mood and emotions rather than as simple informative signals as stated in traditional financial theory.

Reihe: Darmstadt Discussion Papers in Economics
Band: 166
Ort: Darmstadt
Freie Schlagworte: Judgement under uncertainty, Bayesian Inference, Behavioral Finance, Decision Making, Emotions
Fachbereich(e)/-gebiet(e): 01 Fachbereich Rechts- und Wirtschaftswissenschaften
01 Fachbereich Rechts- und Wirtschaftswissenschaften > Volkswirtschaftliche Fachgebiete
Hinterlegungsdatum: 20 Nov 2008 08:25
Offizielle URL: http://econstor.eu/bitstream/10419/32092/1/511221452.PDF
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JEL classification: G1

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