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International Journal Of Engineering, Business And Management(IJEBM)

Bounded Rationality by Temptation in Investment

Letian Jiao , Luyao Zhang , Haitao Chen


International Journal of Engineering, Business And Management(IJEBM), Vol-5,Issue-5, September - October 2021, Pages 23-31 , 10.22161/ijebm.5.5.5

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Article Info: Received: 20 Sep 2021; Received in revised form: 09 Oct 2021; Accepted: 18 Oct 2021; Available online: 26 Oct 2021

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Rationality is a common assumption that can be found everywhere in traditional economic theory. We always assume that investors are rational and the preference of investors is consistent. But we can always see irrational behaviors in capital market. We use changing utility function to describe character of time-inconsistency for some people so as to study their investment preference about return and risk. And we explain why there exists so many irrational behaviors in the financial market. Investors themselves suffer from this kind of behaviors and financial institute which is selling risky asset take this opportunity to exploit investors.

Bounded Rationality, Time-Inconsistency, Sophisticated, Naïve, Pricing Strategy, Exploitation.

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