Behavioral Economics

Many academics advocate that markets are "efficient." They argue that all stock and business information is embedded in the current price of an asset. As new information enters the market, the asset price immediately adjusts to reflect the new market sentiment. As a result of these efficient markets, investors can only hope to achieve the market rate of return given the amount of risk taken. There is very little opportunity, according to the academics to achieve higher rates of return in regards to capital expenditures than the overall market warrants. It is my contention however that the markets are inefficient in both valuations and subsequent reappraisals of assets and capital projects. Behavior finance and the teachings embedded within its theories are proof of the inefficient market theory (Shleifer, 1999). In fact, behavioral economics has very profound implications on the overall business decisions of a company in regards to...
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