Why prospect theory predicts that security prices will differ from their prices under efficient securities...
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Accounting
- Why prospect theory predicts that security prices will differ from their prices under efficient securities market theory? (4 marks)
- Draw the Prospect theory utility function. Explain how the rate of decline in utility for losses differs from the rate of utility increase for gains. (6 marks)
- The Framework drops the word "rational" as a description of investor and creditor decision-making. List two Behavioural characteristics that predict investor's under-reaction to the full information content of financial statements. (4 marks)
- If investors do not make rational decisions, does this increase or decrease the role of financial reporting in providing useful information to investors? Explain. (4 marks)
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