Behavioral Finance

Lecture Details

CAPM appeared to fit the statistical evidence for a the period prior to its development, enabling its supporters to champion it and leading to it taking over the profession? But was this just a fluke, resulting from the short time period considered by the statisticians? It has since been challenged by Behavioral Finance, but it seems that this school has also misunderstood John von Neumanns work. Once objective probability is used as he intended, rather than subjective probability, all the so-called paradoxes of Behavioral Finance disappear. I also outline John Blatts method of accounting to some extent for uncertainty, and show that--contrary to conventional opinion--the Payback Period is superior to Net Present Value because it takes account of uncertainty as well as the time value of money.