Sehr wichtig, 5. Behavioral Finance

4 axioms of rationality of Neumann and Morgenstern?

  • Axiom 0 (Dominance) – More money is never worse than less money and only money matters.
  • Axiom 1 (Completeness) – Between any two possible alternatives the individual has a well defined preference, e.g. for any pair of investment opportunities an individual has a preference order.
  • Axiom 2 (Transitivity) – If Ms Rich likes investments in stocks more than in bonds and an investment in bonds more than in hedge funds than she also likes investments in stocks more than in hedge funds.
  • Axiom 3 (Independence) – If Ms Rich prefers investing in a stock to investing in a bond then she prefers combining the stock with a hedge fund to combining the bond with a hedge fund.

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