Behavioral finance FAQ / Glossary (M)

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Ma


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

Magical thinking, numbers



Due to its length, this article

    is in a separate page

of this "M" glossary section

Mania (collective)

00/12i + see mass behavior, bubble

Manipulation, manipulate



Due to its length, this article

    is in a separate page

of this "M" glossary section

Mass behavior, hysteria, market



Due to its length, this article

    is in a separate page

of this "M" glossary section

Mathematical psychology

See decision making, model

Mathematical psychology is a field of research that tries to quantify human
behavioral factors
with the purpose to build decision making models.

Maximization (of utility, of reward/risk

01/7d,9i + see utility

Me


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

Mean-reversion / reverting

02/8i,11i,12i  + see
reversion to the mean

Mean-variance

02/5i + see risk, volatility

Media bias, distortion


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 us, but they 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?


Many distortions are unavoidable and accidental, but others are clearly akin to
manipulation.

Therefore, information distortions done by media people occur:

Either involuntarily:

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,

or because of habits, mimicry (copy and paste), and

unconscious biases, etc.


Or half consciously, because of blatant neglect

and lack of professionalism in general.

Or plainly voluntarily (see manipulation, disinformation).

Meme, memetics


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:

is a small "cultural object", a  common bit of knowledge (meme =
   memory) used in a society.

(concept, image, song, habit, belief, story, product, brand, buzzword
or catch
phrase, joke, slogan, motto, stock name...).

which has been diffused by replication from mind to mind

mind 

Such self-replication make the analogy with genes (thus the semantic
similarity) or viruses (see viral communication).

Memetics is, you guessed it, the study of memes.

In finance, we can give the P/E example (price/earnings ratio, see
          that term).

Memory (short, long)



Due to its length, this article

    is in a separate page

of this "M" glossary section

Mental accounts / accounting / compartments

Mental myopia

Due to their length, those articles

    are in a separate page

of this "M" glossary section

Mi

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

Microeconomics paradoxes
(St Petersburg, Allais...)

00/8i + see game theory,
decision paradoxes
+ probabilities site link

Mimicry



Due to its length, this article
   
is in a separate page

    of this "M" glossary section

Mindshare

01/1d + availability heuristic,
reputation, meme

How many people remember it?

Definition:

The mindshare is a measure of how widespread is the attention a
population devotes to
something, an event, a notion, an 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.

(price) Misalignment


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:

The real stock price

And the so-called stock's "intrinsic value", which is tentatively calculated
   with
quantitative 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, interest rates...)

Are those misalignments sizable and frequent?

Of course, some "misalignments" might be only apparent and come from a
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.

But why such distortions?

Collective misperceptions, misreactions and misrepresentations are the main
sources of misalignment and mispricing (see below)

Misperception / misrepresentation

See perception,
representation

.

A mental misperception is an impression,
as well a misrepresentation is a belief
or conclusion =>

that contradicts
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

Mispricing


See misalignment, anomalies,
price anomaly, behavioral
biases, value, overpricing,
underpricing + bfdef3

Misreaction (to info)


01/6i + see over / under-
reaction, information
+ bfdef3

Misrepresentation

See misperception,
representation, disinformation

Mo - Mon


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

Mob psychology

See crowd behavior

(trading, pricing, investment...) Model, Modeling


Due to its length, this article

   is in a separate page

of this "M" glossary section

Mojo

00/12d

images/images/pi-arrig.gif Momentum

images/images/pi-arrig.gif Momentum effect

Momentum investing / trader / trading

Due to their lengths, those articles

    are in a separate page

of this "M" glossary section

 

Money attitude

07/7i + see psychology
of money

Money illusion / monetary illusion


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
kinds of operations.

It is a kind of "framing" (see that word) that may give the illusion of getting
richer or poorer.


For example:


Salaried people might not perceive that unbalances such as too
    much money available for the  economy might mean
inflation, which
    might lower their real wage.

    They might accept to do more work when getting a better nominal
     wage, even it is really lower in real terms than they were normally
     willing to work for (wage stickiness).


Investors, because of that illusion (which can be compounded by an
   "attribution bias", see that phrase),
may have a problem of discerning:

What performance results from their stock-picking talent.

What comes from general market moves.

Boy, my stock goes up 10%, I am elated,
even though the market index went up 15%.


Home owners might be convinced that their asset guarantees eternal
   
money gains as its price can only rise

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

(investor / market) Mood


See (general, social) mood,
(market / investor) sentiment,
consensus

(general / social) Mood



Due to its length, this article

    is in a separate page

of this "M" glossary section

Moral

Moral hazard

Moral hypocrisy

Due to their length, those articles

    are in a separate page

of this "M" glossary section

Motivation, Motive

See need, behavior,
cognition, emotion

Motivations / drives are what cause behaviors.
Except of course 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.

(investor) Motivation

See (investor / trader)
psychology

(mental) Myopia

See mental

Mysticism, mystical, mystique

Due to its length, this article

    is in a separate page

of this "M" glossary section

(*) 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

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This page last update: 27/08/15

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