By Thorsten Hens
Chapter 1 creation (pages 1–9):
Chapter 2 selection thought (pages 11–66):
Chapter three Behavioural Biases (pages 67–104):
Chapter four threat Profiling (pages 105–134):
Chapter five Product layout (pages 135–155):
Chapter 6 Dynamic Asset Allocation (pages 157–185):
Chapter 7 existence Cycle making plans (pages 187–206):
Chapter eight established Wealth administration approach (pages 207–227):
Chapter nine end and Outlook (pages 229–230):
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Additional resources for Behavioural Finance for Private Banking
Applying the Bayes rule, we get: P(D2 ∩ O3 ) P(O3 |D2 )P(D2 ) P(D2 |O3 ) = = . P(O3 ) P(O3 ) In this equation, P(O3 |D2 ) is the probability that the host opens door 3 given that the car is behind door 2. Since the host will not open the door with the car behind it, we get P(O3 |D2 ) = 1. Further, P(D2 ) is the prior probability that the car is behind door 2, which is equal to 1/3. Finally, we need to calculate the prior probability that the host will open door 3 or P(O3 ). To calculate this probability, recall that there are three possible states: the car is behind door 1 (D1 ), the car is behind door 2 (D2 ) and the car is behind door 3 (D3 ).
One can show the following properties:10 • If the investor’s preferences are such that he has a decreasing (increasing) ARA, he has to increase (decrease) the monetary units invested in risky assets as he becomes richer. If the investor has a constant ARA utility, he must hold the same amount of risky assets when increasing income. • If the investor is interested in knowing how to adjust the exposure in risky assets as a percentage of his wealth, he has to pay attention to his RRA. The fraction of wealth invested in risky assets increases with income if and only if RRAdecreases with income.
In this case one speaks of ambiguous situations. The main focus of this section will be on decisions under risk. 2 The axioms of rationality Decisions under risk can be very successful, in particular if the state with the best outcome is realized. However, this fact does not mean that the decision was good. Without additional information we can only say that the decision-maker was lucky. To distinguish between good and lucky decisions, we need the concept of rationality. We start by introducing the concept of a preference.