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Essay / Research Paper Abstract
This 3 page paper looks at the way capital markets, and their agents, such as brokers, may be perceived are being hyper-rational, and discusses whether or not this is an accurate interpretation. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEhyperrat.rtf
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Unformatted sample text from the term paper:
result of the impact of human influences and the concept of bounded rationality as well as phenomena such as asymmetrical information. These patterns and influences have resulted in all models
failing to accurately predict the way capital markets will move due to the nature of the influences. However, it has been argued that there are times when agents of the
capital markets and their agents are assumed to be hyper-rational or that markets themselves may behave in hyper-rational ways (Ryan, 2006). The majority of behavioural financial theories focus on the
way that markets are irrational from the presence of irrational exuberance to panic selling is phenomena that are observed. However, in looking at the concept of hyper-rationality a good starting
point is with the concept of bounded rationality, an idea that was first proposed by Herbert Simon. In this model of thought it was argued that the human mind is
not capable of the rational decisions that are required for optimal decisions to be made as they are presented in neoclassical economic theory and the theory of consumer choice (Simon,
1982). Instead Simon argued that there are limits in terms of the computational abilities that they possess, so instead of optimising the decisions there is a process he referred to
as satisficing. In this model the individuals making the decision do not shoos the option decision, as they cannot work that out, due to the inability to be able to
consider and calculate all possible influences instead they make a decision that they are satisfied with, ion effect they are bounded in terms of their rationality (Simon, 1982). This
may be seen as a stark contrast to the general approach adopted in economic theory, where there were rational expectations, which by definition means that there needs to be unbounded
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