BUSI 4502 Lecture Notes - Lecture 5: Dual Process Theory
30 Aug 2018
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Document Summary
Active investment is about making necessary decision, like which securities to buy and sell, how risk is allocated in the portfolio, when and how to trade to achieve optimal results. Better investment decisions are defined as one that leads to better investment results. The purpose of this article is to determine how decisions are made and how to make better decision. The two assumptions in this article are listed below. Decision-making advantage is shown to be sustainable than information advantage for most investors. Decision-making advantage or errors can compound over time. There is a debate regarding clinical against actuarial judgement when it comes to decision-making. The author suggested that both methods to be used whereby investors can use intuition to form hypothesis and use statistics to verify them and algorithms to apply them. He also states that people are judgmental bias and have cognitive limitation with affects or ability to make rational decision.
