Neoclassical theory and behavioral finance
| Order ID |
53563633773 |
| Type |
Essay |
| Writer Level |
Masters |
| Style |
APA |
| Sources/References |
4 |
| Perfect Number of Pages to Order |
5-10 Pages |
Description/Paper Instructions
Neoclassical theory and behavioral finance
Neoclassical theory and behavioral finance are two different approaches to understanding how financial markets work. Neoclassical theory, which is also known as rational expectations theory, assumes that investors are rational and make decisions based on all available information. Behavioral finance, on the other hand, argues that investors are not always rational and that their behavior is influenced by a variety of factors, including emotions, biases, and heuristics.
Neoclassical theory
The neoclassical theory of finance is based on the following assumptions:
Investors are rational.
Investors have all the relevant information.
Markets are efficient.
The rational expectations assumption means that investors make decisions based on all available information and that they do not make systematic errors. The efficient markets hypothesis (EMH) states that prices in financial markets reflect all available information, so it is impossible to consistently outperform the market.
The neoclassical theory of finance has been very influential in the field of finance. It has led to the development of a number of important financial theories, including the capital asset pricing model (CAPM) and the efficient market hypothesis. These theories have been used to guide investment decisions and to develop financial products.
Behavioral finance
Behavioral finance is a relatively new field of study that emerged in the 1970s. It is based on the idea that investors are not always rational and that their behavior is influenced by a variety of factors, including emotions, biases, and heuristics.
Some of the most well-known behavioral biases include:
Overconfidence: Investors tend to overestimate their own abilities and to make decisions that are too risky.
Herding: Investors tend to follow the crowd and to make decisions that are based on the actions of others.
Loss aversion: Investors tend to be more risk-averse when they are facing losses than when they are facing gains.
Mental accounting: Investors tend to group their financial decisions into different mental accounts, which can lead to suboptimal decisions.
Behavioral finance has challenged some of the key assumptions of neoclassical theory. For example, it has shown that investors are not always rational and that markets are not always efficient. This has led to the development of new financial theories that take into account the behavioral biases of investors.
The importance of behavioral finance
Behavioral finance is becoming increasingly important in the field of finance. This is because it can help to explain why financial markets sometimes behave in ways that are not predicted by neoclassical theory. For example, behavioral finance can help to explain why stock prices sometimes exhibit irrational exuberance or why they crash.
Behavioral finance can also help to improve investment decisions. By understanding the behavioral biases of investors, investors can make more informed decisions and reduce their risk.
The future of behavioral finance
Behavioral finance is a rapidly growing field of study. As our understanding of behavioral biases improves, we will be able to develop more accurate financial theories and to make better investment decisions.
In the future, behavioral finance is likely to play an even more important role in the field of finance. As financial markets become more complex, it will become increasingly important to understand the behavioral biases of investors. This will help us to make better investment decisions and to reduce our risk.
Conclusion
Neoclassical theory and behavioral finance are two different approaches to understanding how financial markets work. Neoclassical theory assumes that investors are rational and make decisions based on all available information. Behavioral finance, on the other hand, argues that investors are not always rational and that their behavior is influenced by a variety of factors, including emotions, biases, and heuristics.
Behavioral finance is a relatively new field of study, but it has already challenged some of the key assumptions of neoclassical theory. It is likely to play an increasingly important role in the field of finance in the years to come.
Neoclassical theory and behavioral finance
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RUBRIC
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NO RESPONSE |
POOR / UNSATISFACTORY |
SATISFACTORY |
GOOD |
EXCELLENT |
| Content (worth a maximum of 50% of the total points) |
Zero points: Student failed to submit the final paper. |
20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. |
30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. |
40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. |
50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. |
| Use of Sources (worth a maximum of 20% of the total points). |
Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. |
5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. |
10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. |
15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. |
20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. |
| Grammar (worth maximum of 20% of total points) |
Zero points: Student failed to submit the final paper. |
5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors |
10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors |
15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. |
20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. |
| Structure of the Paper (worth 10% of total points) |
Zero points: Student failed to submit the final paper. |
3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. |
5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper |
7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. |
10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. |
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