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Title:Emotions, Bayesian inference, and financial decision making PDF Logo
Authors:Salzman, Diego
Trifan, Emanuela
Issue Date:2005
Series/Report no.:Darmstadt discussion papers in economics 166
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.
Subjects:Judgement under uncertainty
Bayesian Inference
Behavioral Finance
Decision Making
Emotions
JEL:G1
Document Type:Working Paper
Appears in Collections:Darmstadt Discussion Papers in Economics, Inst. f. VWL, TU Darmstadt

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