According to neuroscientist Richard J. Davidson, each person has a unique emotional profile. As he puts it, “Just as each person has a unique fingerprint and a unique face, each of us has a unique emotional profile, one that is so much a part of who we are and those who know us well can often predict how we will respond to an emotional challenge.” Based on his research, Davidson identified six dimensions of Emotional Style in his classic work The Emotional Life of Your Brain written with Sharon Begley. According to him, Each of the six dimensions has a specific, identifiable neural signature—a good indication that they are real and not merely a theoretical construct. The six dimensions of Emotional Style are as follows : Resilience Style : People at one end of this dimension recover quickly from adversity whereas people at the other end of this dimension recover Continue reading
Behavioral Finance Concepts
Prospect Theory in Behavioral Finance
The Prospect Theory was originally conceived by Kahneman and Tversky (1979) and later resulted in Daniel Kahneman being awarded the Nobel Prize for Economics. The work by the authors is considered as path breaking in behavioral finance. They introduced the concept of prospect theory for the analysis of decision making under risk. This theory is considered to be seminal in the literature of behavioral finance. It was developed as an alternative model for expected utility theory. It throws light on how individual evaluate gain or losses. The prospect theory has three key aspects. People sometimes exhibit risk aversion and sometimes risk loving behaviors depending on the nature of the prospect. This is due to the fact that people give lower weight age to the outcomes which are probable as compared to those that are certain. This makes them risk averse for choices with sure gains while risk seekers for choices Continue reading