Behavioral finance FAQ / Glossary (M)
Ma
Dates of related message(s) in the Behavioral-Finance group (*):
Year/month, d: developed / discussed, i: incidental
Magical thinking, numbers
separate page
of this "M" section of the Glossary
00/12i + see mass behavior, bubble
of this "M" section of the Glossary
of this "M" section of the Glossary
See decision making, model
Mathematical psychology is a field of research that tries to quantify behavioral factors
with the purpose to build decision making models.
01/7d,9i + see utility
Me
Dates of related message(s) in the Behavioral-Finance group (*):
Year/month, d: developed / discussed, i: incidental
02/8i,11i,12i + see reversion to the mean
02/5i + see risk, volatility
00/11i,12d - 01/3i + see information anomaly,
disinformation, manipulation
Just because it is in the news, is it true?
Medias are here to inform, but cannot be always fully reliable, for good or bad reasons.
Some information they disseminate do not match realities and distort the truth.
Some of the inconsistencies are blatant, others are less visible. Train your eyes ;-))
Those screens and skews are more or less frequent and excessive, depending on the media "quality".
Why can media biases take place?
When ink or pixels hide the truth.
Many distortions are unavoidable and accidental, but some others are clearly akin to manipulation.
Therefore, information distortions done by media people occur:
by oversimplifications and errors - because of
* either a lack of time (speed
is essential),
* or a deliberate lack of effort to check,
* or an
imprecise knowledge of the topic by the author,
mimicry (copy and paste), and
unconscious biases, etc.
neglect
and lack of professionalism in general.
manipulation, disinformation).
00/7d,8i,11i,12i - 05/2i - 07/6i + see common knowledge,
viral communication, diffusion, epidemics + bfdef2
What all of us know!
Definition: A meme:
(concept, image, song, habit, belief, story, product, brand, buzzword or catch phrase,
joke, slogan, motto, stock name...)
replication (meme = gene) from mind to mind
and becomes widely known (meme = memory) and used in a society.
Such common bits of knowledge (see "common knowledge") self-replicate
just like genes (thus the semantic similarity) or viruses (see viral communication).
Memetics is, you guessed it, the study of memes.
In finance, the P/E example (price/earnings ratio, see that term) can be given.
of this "M" section of the Glossary
of this "M" section of the Glossary
Mi
Dates of related message(s) in the Behavioral-Finance group (*):
Year/month, d: developed / discussed, i: incidental
(St Petersburg, Allais...)00/8i
+ see game theory, decision paradoxes + probabilities site link
of this "M" section of the Glossary
01/1d + availability heuristic, reputation, meme
How many people remember it?
Definition:
The mindshare is a measure of the attention that a population devotes to
something, some event, some notion, some organization or person
An example is the percentage of people in a population
who have memorized a brand, a firm's name....
This measurement is thus linked to
notoriety, fame, perception, reputation, image.
Obviously (this is nearly a tautology), customers and investors tend to neglect obscure companies
and to be fascinated by the best known ones (see availability heuristic), either traditional or trendy.
00/5d,6i,8i - 01/4i,7i + see mispricing, anomalies, price anomaly,
behavioral biases, value, overpricing, underpricing + bfdef3
Wrong side of the price road?
Definition
A stock price misalignment (or mispricing) is a market anomaly in the form of a deviation
between:
price
models
that use current fundamental data and what are considered "objective" projections of returns and risks
(see "value", "fundamental"...).
In other words, that stock appears then underpriced or overpriced compared with those prospects.
The price alignment concept is also used in other markets (currency prices...)
Of course, some "misalignments" might be only apparent and come from miscalculation,
as there is some subjectivity in such calculations,
The conventional
theory (see EMH) says that such discrepancies are speedily corrected.
But in practice, misalignments seem often to persist for a long time, or even amplify.
We see it when a trend accelerate or reverse without clear new information.
Collective misperceptions, misreactions and misrepresentations are the main sources
of misalignment and mispricing (see below)
See perception, representation
.
A mental misperception is an impression => =>
A misrepresentation is a belief or conclusion =>
that is contrary to the real facts.
See for example "base rate fallacy".
It can be due to a wrong information, but also to a misunderstanding by the receiver of the information
See misalignment, anomalies, price anomaly, behavioral biases,
value, overpricing, underpricing + bfdef3
01/6i + see over / under-reaction, information + bfdef3
See misperception, representation, disinformation
Mo - Mon
Dates of related message(s) in the Behavioral-Finance group (*):
Year/month, d: developed / discussed, i: incidental
See crowd behavior
of this "M" section of the Glossary
00/12d
of this "M" section of the Glossary
07/7i + see psychology of money
00/6i,12i - 01/7d - 02/11i - 06/2i - 07/7i + see mental account
The shrinking banknote.
Definition:
Money illusion is the confusion between "nominal" and "real" values
(also called "deflated" or "inflation corrected "values).
It happens when people overlook, in their decisions, factual / real life factors such as
price inflation, or cost comparisons, or (rate of) return benchmarks,
between two periods or two kind of operations.
It is a kind of "framing" (see that word) that may give the illusion of getting
richer or poorer.
For example:
which might lower their real wage.
They might accept to do more work when getting some better nominal wage,
although it is really less in real terms than they were normally willing to work for (wage stickiness).
may have a problem of discerning:
Boy, my stock goes up 10%, I am elated, even though the market index went up 15%.
That belief can make them overpay their home by not seeing that rises in real estate price
often just compensates inflation and that prices excesses can be followed by price collapses.
The subprime bubble / crisis took advantage of that bait.
Moo - My
Dates of related message(s) in the Behavioral-Finance group (*):
Year/month, d: developed / discussed, i: incidental
See (general, social) mood, (market / investor) sentiment, consensus
of this "M" section of the Glossary
of this "M" section of the Glossary
See need, behavior, cognition, emotion
Motivations / drives are what cause behaviors. Except in fully automatic unconscious behaviors
(see automaticity, habit...)
Motivations can come from the intellect (cognition) or from emotions.
Emotions are necessary, they are the main factors that make people act.
But they can override cognition and bring a risk of irrational decisions.
See (investor / trader) psychology
See mental
of this "M" section of the Glossary
(*) To find those messages: reach that Behavioral-Finance group and, once you are there, 1) click "messages", 2) enter your query in "search archives".
Members of the Behavioral Finance Group, please vote on the glossary quality at Behavioral-Finance/polls
This page last update: 14/11/11 Back to BEHAVIORAL-FINANCE GALLERY
