Behavioral finance FAQ / Glossary (B)

A    B    C    D    E    F    G-H    I-L    M    N-O    P-Q    R    S    T-U    V-Z

Full list

Ba


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

BA

See behavioral analysis

Bandwagon effect



  Because of its length, this article
     
is in a separate page
      of this "B" glossary section

BAPM

02/11i + see
behavioral assets pricing model

Base rate fallacy / neglect



  Because of its length, this article

      is in a separate page
      of this "B" glossary section

Bayes, Bayesian probabilities, learning


  Because of its length, this article
     
is in a separate page
      of this "B" glossary section

Bea - Beh


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

Bear / bearish / bearishness


00/10i - 01/10i - 02/1i,5i,7i,8i
- 03/2i - 04/3i - 05/10i

+ see trends, bull, crash

Furry animals that ski down the slope.

Definition:

a bear / bearish market is a market which

* price trend   (see that word) is downwards,

* and sentiment is pessimistic (*) about the future price evolution.


Criteria 

The commonly accepted criteria to identify such a trend are:

Length

Prices have been falling for ..... months or
years (**).

Size

The total price fall has crossed the minus 20% mark in
the most representative market indexes compared to their highest
previous point.

This is the most consensual definition of a bear market,
however insufficient it is: see the two other criteria, length
and persistence.

Persistence

That down trend seems robust and "settled in".

It shows, except for some intermediate "bear rallies" - soon
corrected - no sign of reversal (which of course is not an
insurance that the trend will persist for long).

(*) Although, paradoxically, it is often when the pessimist sentiment is the

most widespread that the recovery (or at least a temporary rally) is in
sight.

(**) This differs from a crash (see that word) which is a sudden / violent
        fall that might
either start a bear market or bring its end.

Animal life

To go on with the market animalistic mythology, the opposite of a bear market
is a bull market.

Why those metaphors?

There are various interpretations, although few people ever saw skiing
bears or flying bulls, after a while getting tired and disloging each other.

Beauty contest


06/2i - 07/7i + see reflexivity,
rational expectation,
herding,
self fulfilling prophecy

Looking more at the jury than at the stage.

The beauty contest is a parable on investor behavior that was formulated by
the economist Keynes.

It shows that a (temporary) winning strategy for an investor is often:

To neglect fundamental data (the real beauty of an asset) to predict the
   asset's price,

But to try to predict the price that the majority

   of other investors will predict.

This is a rather rational attitude ...in some way (see rational expectations).

But it has also strong similarities with herding and peer pressure.

Market effects

Beautiful or ugly market?

This phenomenon makes the market self-referent (see reflexivity).

Investors try to find clues within the market and in its
behavior instead of looking at the economic sphere situation
and prospects.


Endogenous and subjective criteria are preferred to exogenous realities.

Thus the market gets prone to positive feedbacks (bringing often 
      excessive behaviors) and self fulfilling prophecies.

Of course, one day, fundamentals come back in force and the contest can
get ...ugly (market crash).

(human) Behavior

Behavioral analysis

behavior

 

 

   ..

Behavioral asset pricing model
   (BAPM)

 

behav fin.
analysis

   

Behavioral biases in finance /
    economics / management

behav.
bias

     

Behavioral corporate
    management

   

 

corp.
behav


Behavioral economics

   

behav.
eco

 


Behavioral finance (BF)

 

behav.
finance

 

 


Behavioral financial analysis
    (BA - BFA)

Behavioral parameters

Behavioral portfolio theory
   (BPT)

Behavioral pricing

 

behav fin.
analysis

- d° -

- d° -


- d° -

 

 


Behavioral public economics /
   finance

   

behav.
eco

 


Behavioral stock pricing model
   (BSPM), Behavioral valuation


behav fin.
analysis

   

Behavioralist

 

behav.
finance

   

(Entrepreneur) behavior

 

 

 

entrepr


Bel - Bet


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

(common) Belief



  Because of its length, this article

      is in a separate page
      of this "B" glossary section

Benchmark game

See attribution, Goodhart law

Staying on the main roads.

Benchmark portfolio management is a technique that is performed by:

Layering a portfolio in several types of stocks (a kind of naive
   diversification  / asset allocation)
,

And comparing each of those sections to a specific market index (the
   chosen benchmark).

Results

Ready-made excuses?

As a result of such a practice, absolute financial
performance objectives are replaced with relative ones

It leads to a biased / non-optimal management. It gives an excuse in case of
losses, by attributing them

To the general performance of the market, or of the related market section

used as a benchmark, with the objective to equal it (ot with luck
to overpass it slightly)

Not to the managers who stuck investing in it.

A side effect is that a manager who gets behind its target can decide to take
huge risks to try to reach those objectives before the end of the period, a
behavior close to get-eventis (see that phrase).

Bet, betting odds

01/9i - 03/10i,11d,12i
+ see gamble, game theory

Are bettors ...better at predicting?

Odds are the comparisons between

* the probability that the bettors give to the non occurrence of an event

* and the probability they give to its occurrence (ex. 3/1)

In social areas (politics, economics...), bets with
money involved can be better predictors
than polls answers or past statistics.

Thus, to observe the betting odds (of course if there is organized betting)
might help
predict the outcomes of an economic situation (or of other
social situations).

The reasons are that, although bettors have their own biases,

People who commit money are more wary in their choices than those who
    answer instinctively to a survey.

They might have some vision of future evolutions that past statistical data
   could not reveal.

Bets usually don't influence / change the outcomes (well, except if things are
   rigged ;-)

Beta coefficient



  Because of its length, this article

      is in a separate page
      of this "B" glossary section

Bf - Bo


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

BF

See behavioral Finance

Bias / Biases

  Because of its length, this article
     
is in a separate page
      of this "B" glossary section

Bias for action

See boredom

(critical) Bifurcation

Because of its length, this article
   
is in a separate page
    of this "B" glossary section

Binary logic

See Aristotle bias, narrow
thinking, fuzzy logic, yin yang

(economic, financial) Boom, Boom & Bust

04/1i - 05/10i - 08/2d
+ see bubble, cycle

Bounded rationality



  Because of its length, this article
      
is in a separate page
       of the "R" glossary section

Boredom (as a motivation to act)


00/5i,10i - 01/6i - 02/7i
+ see gambling, overtrading,

hyperactivity, noise trading

From inertia to crazy moves.

Definition:

Boredom is a painful sentiment in which nothing attract the attention or raise
an interest and when time seems to advance too slowly...

Boredom can have several effects on people:

Positive effects

It can help to observe things better, to think calmly, to prepare better
   decisions.

It can even bring wise ideas, with or without the help of an
apple falling on your nose from a tree.


Negative effects

It can also get hand in hand with a lack of motivation
   and action.

But in some cases, it might lead, in order to fight boredom,

to decide impulsive, impatient, unnecessary and
even excessive actions
.

Had those bored people thought about their economic interest / utility or life
preferences,
they would have seen those actions as unnecessary, or even harmful
for them or for others.

Note: the same hyperactivity and "bias for action" (in a way the opposite
of the "status quo bias") could have other origins than boredom, as it can
result instead in :

Impatience, hedonic research and various fantasies, compulsions,
   urges or addictions,

But also, as "people don't live only on bread", higher goals, ambitions
   and pursuits,
some well grounded, some others illusory.

In investment matters, boredom can bring overtrading or noise
trading
(see those phrases).

In another approach of the word, in economics or finance, the whole market
can get inactive, bored (and boring), with low volatility

This can occur for example after a long crash. That situation might end in a day
of "capitulation" (see that word).

Br - Bz


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

Brain (circuits, wiring, areas...)



02/21- 07/3i + see neural net,
neuroscience, neuroeconomics,

neurofinance, agent (-based)
model, script, cognition, habit,
information, decision.

Interneuronal web

  Diverse human brain areas, related to cognition and emotions,

interact in mental information processing and decision making.

Neural / neuroscience articles propose some basic knowledge on

The interactions between neurons situated within those brain areas

(but also between neurons in different brain areas), under the action
of specific chemicals and electric waves,)

What processes people can use to decide and act.

This has applications in economic, business and financial decisions, under the

neuroeconomics and neurofinance appelations).

(speculative) Bubble / Crash



  Because of its length, this article

      is in a separate page
      of this "B" section of the Glossary

Bull / bullish / bullishness


00/10i - 00/1i,2i,5i,6i,8i - 03/2i -
04/3i - 05/1i
+ see trends, bear,
(investors) sentiment, bubble.

Climbing bovines?

Definition: a "bull / bullish market" is a market in which:

Prices crossed the plus 25% line and kept rising strongly for months or
    years without showing signs of decisive reversal, except some intermediate 

 "corrections".

The market sentiment is optimistic on the future price evolution.

To Keep It Short and Simple, that phenomenon has resemblance with a bear
market (see above), except for its main trait: it goes ...in the opposite direction
(no secrets between us ;-).

When the bull trend becomes excessive and exuberant, we have a bubble (see
that word) that can et the end ...burst.

But why those animalistic metaphors?

Well, there are various interpretations, although few people ever saw
skiing bears or flying bulls.

Buy and hold

07 /10i + see passive
management, value stock

Buying golden hens,
and keeping them long enough at the farm
to get all their golden eggs
.

Buy and hold is a very selective investment strategy in a few value stocks
(see that word) that not only can be bought at a reasonable price, but that
also show outstanding qualities:

A market leadership in their industry,

A wise and reactive management,

A promising and stable business model which

* not only offers enough profitability and growth,

* but is also rather immune to the pitfalls

of technical, economic and social evolutions.

Not only golden eggs but indestructible hens

The strategy is:

To buy those (very rare) gems in the (very rare) moments when
    they are ultra cheap
,

To keep them whatever the stock market fluctuations.

Such a behavior is the contrary of hyperactivity, noise trading, momentum
trading..., see those phrases.

It is said that Warren Buffet has a preference for this strategy..

(market) Buzz

See meme, rumor, noise,
viral communication,

(*) To find those messages: reach that BF group  and, once there,
      1) click "messages", 2) enter your query in "search archives".

Members of the BF Group, please
 vote on the glossary quality at
BF polls

separ

This page last update: 07/09/15
Back to Behavioral finance gallery


  Disclaimer / Avertissement légal