Behavioral Economics - The Disposition Effect Versus Inefficient Markets

This video gives an overview of the efficient markets hypothesis and discusses some of the empirical evidence for and against in the context of the disposition effect. As told to my students at Northeastern University.

By Jodi Beggs - Economists Do It With Models

[Asiqowoodbbxirbd]

Thx for helping me crush my behavioral finance class Prof. Beggs

[sahindemirtas]

Disposition effect has something to do with hope. Losers always keeps hopes up for the recovery. On other hand, winners usually think of tomorrow’s uncertainty. Once they think tomorrow may not be their day, then they sell it. So hope for future gains and expectation for future gains differ, which creates asymmetrical behavior. That’s the explanation of disposition effect.

[sahindemirtas]

Market efficiency theory is related to the entropy. It basically says entropy of information is always zero in efficient markets. Everything crystal clear and known for all agents.

[sahindemirtas]

Point is that emotion plays great role in decisions.