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2 pages/β‰ˆ550 words
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MLA
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Accounting, Finance, SPSS
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English (U.S.)
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Topic:

Financial Markets and the "Mind Over Money" Game

Essay Instructions:

1. How do you like the Cassidy book so far (chapters 1-6)? Give me the good, the bad and the ugly. Note most people find the book gets much better after the first 6 chapters.
2. How is Fama’s efficient markets theory related to Hayek’s theories and General equilibrium? Again EMH does not come out of thin air. In the 1940's and 1950s's the math involved in General Equilibrium and Hayek's views on Prices contribute to why Fama comes up with the EMH theory
3. Consider the game in the video “Mind over Money” where they auction off a 20 dollar bill. In reality, no one should play this game if we are what traditional economics says we are. We should see that once two people start playing it will not end well for either person. That we are able to see ahead and make rational decisions. But most people will play this game. Why?
4. The main model of consumer behavior assumes that we never buy anything until we've calculated the impact on, for example, our retirement fund, and we're so good at math we use interest rates to compute our pleasure, over time, after buying something. What was Robert Shiller’s response to this in the video Mind over Money?
5. According to Thaler, “Economists assume we shouldn't worry about people taking out 95-percent mortgages or 100-percent mortgages or "trust me" mortgages, because they'll only take out those mortgages if they have made all the relevant calculations.” Do you think this is what people really do?
6. Keynes believed that financial markets arrived in a pretty crazy fashion. His classic quote is that the market could stay irrational longer than you can stay solvent. Keynes said emotions could cause prices to soar and then collapse, and to protect the economy from these dangerous bubbles, the markets had to be firmly regulated by government. Keynes, though, could never explain exactly what the mechanism was. According to Shiller, Keynes never got past the fuzzy stage, and it didn't lead him to a precise mathematical model. And that's why, ultimately, Keynes was rejected by the profession. Why is a precise mathematical model so important for economists?

Essay Sample Content Preview:
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Week 3
1. How do you like the Cassidy book so far (chapters 1-6)? Give me the good, the bad, and the ugly. Note most people find the book gets much better after the first six chapters.
Chapters 1 to 6 of the book are pretty informative. The good is that they realize that everything within that economic realm is related from an economic perspective. There is no absolute independence of one factor from another, and even if there might be, it will only be for one market situation and not another. These first six chapters offer an insight into the struggle between utopian and realistic economics and how realistic economics is quite complex due to the numerous subplots and factors that come into play. The bad is that human beings are predisposed to make economic and financial mistakes due to irrationality. The ugly is that there is a need to build economics based upon the irrationality of human beings rather than the ideal economic basics.
2. How is Fama's efficient markets theory related to Hayek's theories and General equilibrium? Again EMH does not come out of thin air. In the 1940s and 1950s the math involved in General Equilibrium and Hayek's views on Prices contribute to why Fama came up with the EMH theory
According to Hayek, the prices in the market are simply meant to deliver information on the competition therein. At the same time, Fama, on the other hand, believes that integrating information and asset prices contributes to market efficiency. In other terms, both have theories based on informational efficiency and also tie to the general equilibrium theory. The market is usually viewed as a combination of chaos due to the various elements. According to general equilibrium, there is supposed to be some order established by the price system. Through these sorts of efficiencies, the EMH Theory is formulated since it is also based on the efficiency of information therein to predict the constancy of stock prices.
3. Consider the game in the video "Mind over Money" where they auction off a 20 dollar bill. In reality, no one should play this game if we are what traditional economics says we are. We should see that once two people start playing, it will not end well for either person. That we can see ahead and make rational decisions. But most people will play this game. Why?
Most people will play this game because of the basic reason; they are humans and are bound to make h...
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