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Tag Archive: equity risk premium


In one classic experiment conducted by Daniel Kahneman and Amos Tversky, pioneers in the field of blogprospect theory, subjects were given a hypothetical choice between a sure $3,000 gain versus an 80% chance of a $4,000 gain and a 20% chance of not getting anything.

The vast majority of people preferred the sure $3,000 gain, even though the other alternative had a higher expected gain (0.80 × $4,000 = $3,200).

Then they flipped the question around and gave subjects a choice between a certain loss of $3,000 versus an 80% chance of losing $4,000 and a 20% chance of not losing anything. In this case, the vast majority chose to gamble and take the 80% chance of a $4,000 loss, even though the expected loss would be $3,200. Continue reading

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I am personally inclined towards behavioral finance, as it has continuously challenged the conventional financialblog theory of rational wealth maximizers.

The irrational financial decisions, emotions and psychology have taken over the field of finance.

The very famous Aswath Damodaran says, the equity risk premium is the key to investing & valuation.

Ben Graham told once Mr. Market is there to serve you, not to guide you.

In the Taleb’s language you buy – sell or you make omelette out of it depends upon your luck, randomness, Probability, Belief, conjecture, Theory, Forecast and Anecdote.

The most crucial investing question that I have noticed is: Do you know your time frame? Continue reading

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