Refer to the For Your Consideration box below.

1. Do you think investors are mostly rational or do these behavioral factors affect investment decisions? Think about a slightly different set of choices. Suppose your choice is to either take a sure loss of $30 or a coin flip in which heads is zero loss and tails is $100 loss. The expected value of the coin flip is -$50 versus the sure loss of $30. Does this change your thinking?
2. I think as an investor, it is important to learn more about behavioral finance and how psychology plays a large role. Explain. Mention the references used.

For Your Consideration Behavioral Finance Behavioral finance is a eld ofstudy that pro- poses psychology-based theories to explain stock market anomalies. Proponents argue that investors are not nearly as rational as traditional nance theory makes them out to be. of course, the idea that psychology drives stock market movements ies in the face of the EMH. In fact, behaviorisfs, as they are called, contend that, rather than being unusual, irrational behavior is commonplace. Here is one of the experiments they cite to support that view. Suppose you are given a choice of a sure $50 or a coin ip in which you could win either $100 or nothing. Most people, being risk averse, would pocket the sure $50. Now, suppose you are confronted with this choice: a sure loss oszo or a coin ip in which you could lose either $100 or nothing. Now, most people would choose the coin toss, although the value inherent in ipping the coin is equivalent in both scenarios. The idea here is that people tend to view the possibility of recoupinga loss as more important than the pos- sibility of greater gain. The priority of avoiding losses also affects investor behavior. It is common for investors to watch a particular stock plummet in value but refuse to sell because it would \"lock in\" the (continued) (continued from previous page) loss coupled with the belief that the price will eventually bounce back to the value it had once achieved. Although behavioral finance offers no invest- ment miracles, perhaps it can help investors train themselves to watch their own behavior and, in turn, avoid mistakes that would be detrimental to their personal wealth. What are yourviews on behavioral nance? Is there anything to it? Does it make more sense than market efciency? Do you believe that knowledge of behavioral nance can help you beat the market