The Basic of Behavioral Finance

1. ABECON
ABEJA INC.
Behavioral Finance

2. Basics

3. History
 Conventional Finance Theory
 “People are always rational”
 Behavioral Finance Theory
 “People sometimes make inefficient decisions”
 Daniel Kahneman
 Developed Prospect Theory
 Shared the 2002 Nobel Prize. After 2002, behavioral finance has been booming

4. Prospect Theory
• Bet 50% - 1 & 50% +1 mil
→ negative value
Loss
aversion
• Bet 50% 100 mil yen gain
• 100% 40 mil yen gain
Risk
aversion
• Bet 50% 100 mil yen loss
• 100 % 40 mil yen loss
Risk
seeking

5. Other biases

6. Anchoring
Are you happy?
30% of people choose YES
80% of people choose YES after thinking recent happy moment

7. Overconfidence
Optimism
94% of college professors
80% of drivers
70% of students leadership
Self serving
Good stuff happens more
Bad stuff happens less

8. Mental Accounting
 Casino Effect
“Easy come , easy go”
Case A Case B
25% $240
50% $120 12.5% $240
$100 75% = $100
50% $80 $80 87.5% $80

9. Herding

10. Confirmation Bias
Tendency to search for information in a way that confirms one’s belief