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A prospect is a lottery or series of wealth outcomes, each of which is associated with a Risk is measurable using probability, but uncertainty is not. Uncertainty is when probabilities can’t be assigned or the possible outcomes are unclear. A […]

When you play with other’s money you might not make the same decisions as you would with your own. The house money effect is the willingness to take greater risk with money that was recently won, whereas the break-even effect […]

When we trust another we are exposing ourselves to some risk by giving them power over an outcome, whereas reciprocity is how we respond to someone who has made a decision that impacts us. Conformity is to give into real […]

Little white lies are viewed as harmless deceptions and are often told in order to mold the impressions of others. Cooperation is willingness to work with others and does not connote deception. Herding describes following the decisions of others and […]

In the BSV model, under mean-reversion investors expect positive/negative surprises to be followed by negative/positive surprises, while under continuation investors expect positive/negative surprises to be followed by positive/negative surprises. In the Fama-French three-factor model, size and book-to-market are risk factors, […]

A certainty equivalent is the wealth level that leads a decision-maker to be indifferent between a particular prospect and a given wealth level and a gamble is a lottery or series of wealth outcomes, each of which is associated with […]

individual does not like the dividend that is paid out to her, she can set her own policy through a home-made dividend approach. This is the strategy of selling off shares when received dividends are too low, or buying new […]

that their firms will perform well in the future, are happy to expose themselves to own– firm-specific risk even when diversification gains are available. CEOs often receive stock and option grants as compensation. This is done so that shareholders’ and […]

Automatic enrollment or auto-enrollment exists when a company retirement savings plan is designed so that when employees are hired they are enrolled in the plan unless they take active steps otherwise. Scheduled deferral increase programs (SDIPs) are programs based on […]

Avoiders are those who avoid planning for their financial futures, with those who are most deficient in this regard being termed “live-for-today avoiders,” while planners are those who plan for their financial futures, with those who are best at it […]

Style-investing is the consideration of style in portfolio formation. A style-peer group is a group of investors following the same style, where style is usually defined in terms of firm size and growth vs. value. If a manager tilts towards […]

Beta is the CAPM’s measure of risk. It takes into account an asset’s sensitivity to the market and only measures systematic, nondiversifiable risk. The standard deviation is a measure of dispersion that includes both diversifiable and nondiversifiable risks. value of […]

Implicit learning is knowledge that cannot adequately be verbalized whereas learning through practice may be straightforward to explain. Tacit knowledge is known by a person but cannot be fully expressed whereas practical knowledge is the person’s ability to gain tacit […]

Integration occurs when positions are lumped together, while segregation occurs when situations are viewed one at a time. A person who is risk averse prefers the expected value of a prospect to the prospect itself, whereas for a person who […]

Stock prices for value stocks are low relative to accounting measures such as earnings, cash flow, or book value, whereas stock prices for growth (or glamour) stocks are low relative to earnings, cash flow, and book value, at least in […]

The salience of an event refers to how much it stands out relative to other events, whereas the availability refers to how easily the event is recalled from memory. Fast and frugal heuristics require a minimum of time, knowledge and […]

are about to bowl with your friends. In standard 10-pin bowling, 300 is the maximum score, and 200 an excellent one. You are feeling buoyant today and boldly predict 225 as your score, with a 90% confidence range of between […]

Answers can vary for this question depending on the student’s evaluation of their own investment expertise. Students should recognize that IQ and EQ are both important for success. The intelligence quotient (IQ) measures a person’s intelligence, whereas the emotional quotient […]

A good company has positive attributes such as a strong management team. A good stock is one you expect to outperform in the future. If markets are efficient there are no good or bad stocks. A momentum-chaser buys stocks that […]

chapter. Sensation-seeking on the other hand is a personality trait whose four dimensions are thrill and adventure seeking (i.e., a desire to engage in thrilling and even dangerous activities); experience seeking (i.e., the desire to have new and exciting experiences, […]