The Capital Asset Pricing Model (CAPM) is based on the assumptions of complete agreement regarding return distributions and risk-free borrowing and lending, implying that all investors perceive the same investment opportunities and maintain similar portfolios of risky assets, but the allocation of risk-free assets could vary depending on the risk tolerance of each investor. TheyContinue reading “The Capital Asset Pricing Model: Theory and Evidence”
Tag Archives: behavioral economics
On Social Media and Fake News in the 2016 Election
In their article, Allcott and Gentzkow (2017) present a theoretical and empirical framework for examining the economics of fake news, focusing on its role in the context of social media during the 2016 United States of America (US) presidential election. It discusses fake news and voting behavior in the presidential election by investigating various aspectsContinue reading “On Social Media and Fake News in the 2016 Election”
On Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias
An anomaly in economics occurs when an empirical outcome is challenging to justify, or when it requires unrealistic assumptions for its explanation using the underlying theories. In simpler terms, it pertains to a real-life scenario that contradicts or departs from the conventional theory. The anomalies discussed by Kahneman et al. (1991) are the endowment effectContinue reading “On Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias”
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