Behavioural Finance: Deal or No Deal? Who Wants to Be a Millionaire?

In: Business and Management

Submitted By EMAC
Words 2000
Pages 8
Behavioural Finance - Erin McCall
Who Wants To Be A Millionaire? Deal Or No Deal?

WHO WANTS TO BE A MILLIONAIRE?

1) The risk averse investor would accept the safety level of $500,000 because they would refuse to accept any risk. The risk neutral investor would have been indifferent had the expected payout for both options been equal however, given that the expected payout for the guess is higher than that of the sure thing the risk neutral investor would choose to guess. The risk lover investor would always choose the option pertaining to the most risk and therefor choose to guess.

2) The expected value of the guess is $15 million [(0.5 x 30M) + (0.5 x 0)]. However, the actual outcome will either be $30 million or $0.

3) The average person would choose the safe $10 million because their marginal utility after that point begins to decrease. $10 million is far higher than the average American’s income of roughly $51,000 , implying that most people would recognize that $10,000,000 is a life changing amount and not be willing to risk it for $30,000,000.
The individuals who choose not to risk the guaranteed $10,000,000 are most likely female , an older adult , married and in a low to moderate-income profession. Females are inherently more risk averse than men, making them more inclined to take the sure thing rather than risking it. Older adults must consider their sources of income after retirement as well as potential medical considerations when determining their propensity for risk, causing them to be increasingly risk averse. Furthermore, adults whom are married must consider how their actions affect others, leading them to be more risk averse, this magnifies when dependents such as children are considered. Their profession may play a role in their propensity for risk, however, it is the salary associated with the profession that plays a…...

Similar Documents

Deal

...to hold, all and singular the described property, together with the tenements, hereditaments, and appurtenances belonging to such property, or in anywise appertaining, and the rents, issues, and profits of such property to Transferee, and Transferee's heirs and assigns forever. IN WITNESS WHEREOF, Transferor has executed this Quitclaim Deed on the date first above written. Diversified Property By: ______________________________ Acknowledgment State of ________________ ) ) ss County of ______________ ) On this 11/10/2010, before me personally appeared Diversified Property , to me known to be the person described in and who executed the foregoing Quitclaim Deed and acknowledged to me that Diversified Property executed the same as his free act and deed. ______________________________ Notary Public...

Words: 258 - Pages: 2

Deal Tracker

...the darling of the stock market. In stark contrast, last week, Dell unveiled a buyout deal to take the company private. The $24.4-billion buyout would be financed with Michael Dell’s cash and equity, cash from Silver Lake, and a $2 billion credit line from Microsoft. Four major investment banks — Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets — are financing the debt. The primary intention behind the go-private move appears to be to escape the harsh glare of the markets with iffy quarterly results and to focus on strategy without being hounded by analysts. It could well be a combination of many factors, but the fact that cannot be denied is that Dell has been bleeding because of the shift in the market to smartphones and tablets and its inability to play catch-up. Further bleeding could have only hammered its stock price. While the buyout can help it avoid quarterly analysis and questions, delisting could also prevent Dell from building a war-chest for future acquisitions. LEVERAGED BUYOUTS As in most leveraged buyouts, the price being offered — $13.50-13.75 a share — is being questioned. Southeastern Asset Management — which has some stake in Dell — hopes to make life difficult for Michael Dell. As the largest outside shareholder of the eponymous company, it says it doesn’t support the cheaply priced buyout led by the billionaire founder and will vote against the proposed deal. Southeastern values the company at $23.72 a share, greater than the......

Words: 1412 - Pages: 6

Behavioural Finance

...A Behavioural Finance view of the Deepwater Horizon Disaster of 2010 INTRODUCTION The Deepwater Horizon disaster of 2010 was the largest accidental marine oil spill the oil industry has ever seen. It claimed 11 lives and caused huge environmental damage on the shoreline of the Gulf of Mexico by discharging circa 4.9 million barrels of oil. There have been numerous enquiries and studies into the accident to try to understand what happened, the goal of the enquiries was to establish where the fault and therefore guilt lay in order to ascertain compensation. This report attempts to apply key concepts from behavioural finance with a view to understanding the thought processes behind the decisions that were made. In the last decades there have been a lot of studies documenting the impact of psychological traits on the decisions made by managers. This report while touching on them, will not go into detail regarding the various technical difficulties encountered on the Deepwater Horizon and will instead focus on understanding the thought process of the various players involved. We will also briefly cover BP’s historical safety record as this will help us understand some of the behavioural factors in play within the organization. While BP was the principal on the Deepwater Horizon rig there were also other parties like Transocean , the rig operator, Halliburton, who operated in a consultancy position, Anadarko and Schlumberger. These companies played a part in the crisis and their...

Words: 3129 - Pages: 13

Bolman and Deal

...Virtually every human activity – ranging from obtaining an education to starting a family – is carried out within an organization. According to Bolman and Deal, everyone unconsciously forms frames or mental models which they use to understand and negotiate the organizations that they belong to. These frames can be compared to tools; using the right tool correctly speeds up an activity while using the wrong tool may get in the way and cause complications. The Bolman and Deal model suggests that all organizations can be analyzed through the structural, human resource, political and symbolic frames. The structural frame revolves around roles, policies and technology environment of the organization. The human resource frame focuses on the needs, skill and relationship between the people and the organization. The political frame focuses on power, conflict and competition within the organization while the symbolic frame deals with the organization’s culture, rituals and symbols. Although the frames offer distinct viewpoints, I think they sometimes can and should be combined to gain a more complete overview of the organization. Teamwork is a very important concept to many organizations today and the Bolman and Deal model considers teamwork from different frames. The model defines a team as a small number of people with complementary skills who have a common purpose and a set of performance goals (111). While the structural frame proposes that the success of a team depends on the......

Words: 836 - Pages: 4

The Deal

...Leon Ball Creative Writing Final The Deal The sound of shoes walking on the tile floor was echoing throughout the entire mall. The heels clicking, sneakers were squeaking, and the flip flops smacking the floor as the people of the Colorado Springs mall, the south end location, were walking around with their family and friends trying to enjoy the day. Sarah Tolsen was spending the day at the mall with her friends trying to just enjoy the day. Sarah is new to this town and she has been trying to fit in with a clique of girls at her school. The girls that Sarah was trying to fit into were plotting on how they could initiate her into their little group. They all finally decided that they were going to make her steal something to prove she belonged in their group. Once Sarah heard what she had to do she hesitated at first and knew that these girls wouldn't truly be her friends if they didn't care if she got in trouble or not. She decided that if she had to spend another four years in her high school that she was going to need friends, even if they weren't really her friends for life. Sarah took a deep breath and started to walk towards the entrance of a store that sold accessories for young women. There were handbags of all colors and shapes, hair clips with feathers attached, and a wall with nothing but jewelry that glistened under the lights in the store. Sarah tried not to draw attention to herself as she scoped out the store and determine what would be the easiest......

Words: 1022 - Pages: 5

Hr Deals

...guidance and support in preparing the project. I am highly thankful to Prof.CKR Gnanapazham, under whose guidance I completed this project of mine. It was her perceptive guidance, constant encouragement, constructive ideas, unflinching support and affection, which were the guiding light during the tenure of this work. Words cannot express my sincere thanks to her, as her selfless help in every way has left an indelible mark of gratitude on me. I am greatly indebted to Ms. Tina (HR manager) my immediate supervisor, for helping and guiding me to work in a great atmosphere with a lot of learning experience. Finally, I would like to extend my special thanks to all the employees of the organization, my parents, friends, and to all those who have helped me and encouraged me to complete this project work. TABLE OF CONTENT SL.NO. | CONTENT | PAGE NO. | PRELIMINARY 1 | Declaration by the Student | 2 | 2 | Certificate by the Guide | 3 | 3 | Acknowledgement | 4 | 4 | List of Tables and graph | 6 | 5 | Executive Summary | 8-9 | CHAPTER 1 INTRODUCTION 1.1 | Background of the Study | 10 | 1.2 | Need/Rationale of the Study | 10 | 1.3 | Objective | 10-11 | 1.4 | Sectional details | 11 | CHAPTER 2 METHODOLOGY 2.1 | Research Design | 12 | 2.2 | Sampling Design | 12 | 2.3 | Source &Type of data | 12 | 2.4 | Method of Data Collection | 12 | ......

Words: 5298 - Pages: 22

Ontario Wants Compensation for Deal Fallout

...This article regards the massive free trade pact between Europe and Canada which was agreed upon in secret by the Federal Conservatives. This pact allows Canadian companies’ access to 28 European Union countries, however, this negotiation comes with a price. Ontario has three major concerns with this deal. The first concern is the increase of tonnage in European cheeses. This affects manufacturers: Queen’s Park will want full reimbursement for the producers. The next issue concerns the wine producers. The tax based on the value of the product will be replaced by a flat fee that is linked to the volume of the product. For instance, a 750-millilitre bottle of wine costing $100 would be the same as on one costing $10. This revision can damage Canada’s wine industries. The final concern is the possible modification in the health budget. The deal involves a 2 year extension of a pharmacy’s licence of selling medical drugs, which could potentially increase drug costs. Some pharmacists believe there will be an extra $1.2 billion payment on Ontario’s consumers and governments yearly. This deal could also possibly cost 150,000 Canadian jobs. The article demonstrates what we learned in the geography course about value of foreign trade between countries. The value of foreign trade indicates a country’s involvement in world economy. In this article it displays the involvement between Canada and Europe. (P.g. 14, Making Connections Canada’s Geography) This pact affects both Canada’s and...

Words: 615 - Pages: 3

The New Deal

...The New Deal and the Pros and the Cons The Great Depression was the worst both economically and physically for the country. Roosevelt was elected in 1932 and began to bring relief with his New Deal. In his first 100 days as President, sixteen pieces of legislation were passed by Congress, He was re-elected twice, and quickly gained the trust of the American people. The New Deal policies helped the United States economy greatly, but some hurt the country . One particularly was the Agricultural Adjustment Act, which was later declared unconstitutional by Congress. Lots things also stayed very consistent in the New Deal. For example, the Civilian Conservation Corps, and Social Security, since Americans were looking for any help they could get, these acts weren't seen as a detrimental at first. Overall, Roosevelt's New Deal was a success, but it also had lots of stumbling points. Roosevelt proposed to pay farmers for cutting back on production producing. It was supposed to help increase farm prices by decreasing the supply. The government had to deal with the existing surplus .There were a total of six million pigs slaughtered, ten million acres of cotton were burnt. The government wanted to create a shortage to drive the prices up for the farmers. It back fired. The farmers’ income would have been at least as high, if not higher even without Roosevelt's AAA. The farmers found themselves worse off because the National Recovery......

Words: 654 - Pages: 3

Deal with Spotify

...song). The former is very low in absolute dollars, the latter very large (Lady Gaga for example was talking only about publishing royalties in her $160 check). Lastly, it’s unclear whether some artists ‘win’ while others ‘lose’ on Spotify. Do the baby bands benefit at the expense of the Coldplays? The jury is still out. Spotify’s financial viability is a big topic of discussion in the press. The company reported a $59 million loss in 2011, blaming royalties as one of the primary factors. Spotify claims to pay out ~70% of revenue to rightsholders. This is high for software co’s (Microsoft’s COGS are around 80%), though low for a retailer (Walmart/Staples COGS are around 75% of revenue). It all comes down to how much operating cost you can deal with and how much scale Spotify can achieve. Last week’s $3 billion valuation certainly implies the music’s going to keep playing for a little while longer....

Words: 709 - Pages: 3

Obamas Deal

...Obama’s Deal Author: PBS Frontline This video was about Obama’s goal to pass new healthcare legislation and how he succeeded. Obama set out to get this accomplished at the very beginning of his term. This was a task that he and his team realized would make or break his first term. If Obamacare didn’t work out he might not have been voted in for a second term. The biggest impact to his healthcare mission was the team he built up. President Obama had congressional leaders and previous members working closely with his to make his goals a reality. One of the biggest proponents of Obama’s healthcare reform was his Chief of staff Rom Emanuel. Rom Emanuel knew a lot about healthcare from working with President Clinton who also tried to pass a bill on healthcare reform. Unlike Obama’s bill, Clinton’s was destroyed by all the negative ads on TV about the plan saying “If the government will choose, we lose.” Although Obama and his team hit a few bumps in the road the bill was still able to pass through both houses of Congress. President Obama was mainly able to get the bill to pass through Congress because of his deals that he made with Senators. Karen Ignani, the head of the insurance agencies, got into a battle with Obama over the public option. The attack ads began to fly. This caused important leaders in the Senate to side with the insurance companies. It would cost President Obama and his staff a lot of deals to get the votes. Including over one hundred million tax payer......

Words: 454 - Pages: 2

Book Deal

...The Out come of the deal is Royalty $175,000 and 10% of the list price if sales reaches 200,000 copies in a year, otherwise 7% of the list price. we started the discussion with agent explaining about the experience of the author in this field and she is a well known name in the field of Behavioral Decision research (BDR). Slovsky’s has a keen interest in writing this book and this will the first of its kind helping the small investors. Publisher than stated as the author is new and its her first book. So it will be good to with $100,000. Agent told seeing the vast experience and mission of Slovosky this is a below par offer for the book. Publisher told that, since she is new into the market of book writing, it will not be an easy task to reach the mass and thus they will have to put in a lot of money for the Marketing Cost. So the best he can give is $150,000 Then Agent countered with the point that he has a vast experience in such kind of book deal and this can easily give you a lot returns. As the book is first of it’s kind in the market which looks to the core of finance and not the technical side of it, so easy to target a broader Audience. Then we got upto our final outcome of the deal, Royalty $175,000 and 10% of the list price if sales reaches 200,000 copies in a year, otherwise 7% of the list price....

Words: 267 - Pages: 2

Negotiation Deals

...17 Negotiating deals Don’t ever slam a door. You might want to go back in. Don Herold, US negotiator Listed below are the ten most common high-pressure tactics negotiators use. Match each to its description. The first one has been done for you. Tactics 1 The shock opener 2 The vinegar and honey technique 3 The strictly off-limits ploy 4 The take-is -or-leave-it challenge 5 The I’ll-have-to-check-with-head-office ploy 6 The sorry-about-my-English poly 7 The good cop, bad cop approach 8 The once-in-a-lifetime offer 9 The salami technique 10 The last-minute demand Description a Make it look as though you are ready to leave the negotiating table if your demands are not met, that you are not prepared to move an inch further. b Point out at the start that, though you are prepared to negotiate A, B and C; X, Y and Z are definitely not negotiable. c Having obtained a concession from your opponent, inform them that you need your boss’s approval before you can do what they ask in return. d Make unreasonable demands early on in the negotiation. When you later ‘see reason’ and modiry your demands, they’ll be all the more welcome. f Don’t make all your demands right at the start. Make a small demand and get agreement on it before you make the next, and the next… g Pretend not to understand any proposal you don’t like the sound of. You’ll make your opponent uncomfortable by forcing them to repeat it. h Pressurise your opponent by suggesting......

Words: 362 - Pages: 2

Supermarket Deals

...Grade Received - "A" The United States is experiencing inflation, increased unemployment, and escalating gas prices. A 71-year-old food company is associated with hard times, and as the economy heads downward, the product bucks the cycle and enjoys sales increases. During the down economy, marketers are experimenting with various tactics to entice consumers to buy. Cars come with free or cut rate gas; buy a gift card for a friend, and you get one free; and the supermarket is full of 2-for-1 specials each week. Excluding the supermarket deals, choose a product and marketing campaign that targets buyers in a down economy. Discuss the effectiveness of the campaign and how you might improve upon it. Be sure to include your thoughts on competition and differentiation (3 paragraphs total for the post). With the way the economy seems to be going, it is not getting better anytime soon. I see small businesses shutting down, and not to mention big businesses going out of business. An EntertainMart in my area recently went out of business. It is a business that sells movies, music, MP3 players, video games and posters. I thought it would do well but that is what I get for thinking. I still see blockbusters slowly but surely going out of business in my area. I am surprised that they lasted as long as they did. With the way the economy is, more and more people are moving to Hulu, Red Box and Netflix. There are still companies that are out there still striving to bring......

Words: 904 - Pages: 4

How to Deal

...How to Deal An exploration of how to deal with emotions and stress in the workplace. Presented to Judy Tedford, Instructor MSD101 – Organizational Development Presented By Kimberly M. Bentley Spring Quarter, 2009 At some point, we’ve all had “one of those days”. Sometimes it’s because our manager has upset us, or maybe our co-worker has done something that you have to pay the price for. Or perhaps it’s because of trouble in our personal lives, or simply because it’s a rainy day. No matter what the circumstance, as humans we are driven by our undeniable and sometimes uncontainable emotions. So how do we really deal with all of the emotions and stresses that life may throw our way? How do our emotions affect our jobs? How do others expect us to handle our emotions? In order to answer these questions, we must first address what emotions and stress really are. This paper will focus in particular on how much our careers are affected by our personal emotions, the emotions and stresses of others, consequences of not properly dealing with emotions and stress, and possible suggestions for dealing with these issues. Organizations are emotional places. Emotions do not just effect organizations, but they also contribute to their structure. In fact, a great deal of leadership is actually about emotion management. Organizations and businesses use emotions to motivate employees to perform and to motivate consumers to buy. Various events in organizations......

Words: 1825 - Pages: 8

The New Deal

...Amy Hall History Spurgeon 31 March 2006 President Roosevelt and the New Deal The Great Depression was one of the greatest collapses in American social and cultural life. The complacency of the flourishing “Roaring Twenties” led to the Stock Market Crash, and the American Dream was rudely shattered. Those who had previously prided themselves on the ability to provide security for their families were now faced with the harsh reality of poverty. As faith in capitalism soon evaporated, Americans began to look to the government for salvation. Hoover was blamed for his lack of intervention after the collapse of the economy, but just when things were looking their worst, things changed. A new man was elected President. His name was Franklin Delano Roosevelt, and he is recognized as the President who saved the country from ultimate atrophy. True, it was World War I that really ended the Depression, but had it not been for Roosevelt and the adoption of the New Deal, the economic slump of the depression may never have ended. Roosevelt entered office with no plan to deal with the depression. He was willing to try anything and the New Deal became the likely path. It was very experimental and very risky. President Roosevelt promised immediate action to end the Depression, and he kept his promises. The day after his inauguration, he called a special session for Congress. It was here that he declared a national Bank Holiday, where all banks in the U.S. were forced to......

Words: 1549 - Pages: 7

Computer and Philippines Inc. - 5708 Words | Скачать | importance of education - 496 Words