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MFM 2016-19 _ Batch II _ Sem –IV _Sub-Behavioural Finance _ Prof- Dr. R Sardesai
7.1 Substance of Emotion
Sandra Hockenbury
Emotion as a complex physiological state
a subjective experience
a physiological response
expressive response
2. Intentional objects
3. Physiological arousal
4. Physiological expressions
5. Valence Emotions
6. Action tendencies
Negative Positive
7.2 Theories of Emotions
Cognitive Errors
Cognitive Errors deal with how people think and result
from memory and information-processing errors and
are, therefore, the result of faulty reasoning
Emotional Biases
Emotional biases are the result of reasoning influenced
by feelings.
7.3 Evolutionary perspective on emotions
Darwin researched the expression of emotions in an effort
to support his theory of evolution in the 19th century
He proposed that much like other traits found in animals,
emotions also evolved and were adapted over time
According to modern evolutionary theory, different
emotions evolved at different times
Primal emotions, such as fear, are associated with ancient
parts of the brain and presumably evolved among our
premammal ancestors
Social emotions, such as guilt and pride, evolved among
social primates.
Evolutionary perspective on
emotions - impact on finance
The Central assumption of the traditional finance model is that
people are rational.
Standard Finance theories are based on the premises that investor
behaves rationally and stock and bond markets are efficient.
As the financial economist were assuming that people(investors)
behaved rationally when making financial decisions, psychologists
have found that economic decision are made in an irrational
manner
Cognitive error and extreme emotional bias can cause investors to
make bad investment decisions, thereby meaning that they act in
irrational manner.
7.4 Types & Dimensions of Emotions
Plutchik’s wheels of emotions – There are 8 primary
emotions Joy , Trust, Fear, Surprise, Sadness,
Anticipation, Anger & disgust
Each one has polar opposite
1. Joy – Sadness
2. Fear – Anger
3. Trust - Disgust
4. Surprise- Anticipation
Continued…
Intensity of
emotions increases
as it moves toward
the centre of wheel
and decreases as it
moves outwards
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