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Investments Chapter 6: Market Efficiency and behavioral finance 2023 Errors made by historical investors - answer-tend to think in terms of extreme outcomes, subject to cognitive errors. Example tulip bubble Modern Portfolio - answer-holds that all investors are risk averse and rational follow these rules: make decisions that maximize expected utility, not be biased, make decisions using rational expectations, maintain indifference curves along the efficient frontiers.

Behavioral finance midterm correct answer 2023 Martingale process - answer-o A martingale is a process whose value at any future date is not predictable with certainty. Given the information today, the best estimate of a future stock prices is todays price o On average, you will neither make nor lose money o Appropriate model for EMH bc on any date, past info offers no real clue to predicting future prices