The Premise of Behavioral Finance Is That

question 8

Multiple Choice

The premise of behavioral finance is that

• A) conventional financial theory ignores how real people make decisions and that people make a difference.
• B) conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility-maximizing investors.
• C) conventional financial theory should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person.
• D) conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility-maximizing investors and should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person.
• E) None of the options are correct.

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Definitions:

Positive Reinforcement

A process in behavior analysis that involves the introduction of a favorable stimulus following a desired behavior.

Shaping

A method in behavioral psychology where successive approximations of a target behavior are reinforced until the desired behavior is achieved.

Successive Approximations

A technique used in behaviorist psychology, involving the reinforcement of behaviors that are increasingly similar to the desired behavior.

Operant Conditioning

A method of behavior modification where the intensity of an action is influenced by positive or negative reinforcement.