Tort Law – Any business field is affected by many aspects that may give rise to wrongful acts which may be done by the business or by a different party to a business entity. Tort law thus comes in to deal with any sort of the civil wrongs which may arise in line of doing business, such as negligence which emanates from other sources than breach of contracts (David Ziemer, n.d.).
One of the significant court cases in this category is the Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99 (1928). This case is considered to be among the leading in the American tort law in regard to liability to an unanticipated plaintiff (David Ziemer, n.d.). When a civil wrong occurs, both the individual and business could be financially and legally responsible for the injuries caused as a result of negligence. One of the main factor relied upon when determining negligence include the breach of duty by the defendant which they owe to the plaintiff.
The case of Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99 was handled by the New York Court of Appeals. In the case, Helen Palsgraf was the plaintiff and was waiting at the Long Island Rail Road station. She was on her way to take her kids to the beach. While boarding, two men tried to get on board before the plaintiff, and one dropped a package while being assisted by railroad employees, and it exploded. The explosion caused a huge coin-operated scale located at the platform to hit Palsgraf. She started stammering after the occasion and ultimately sued the railroad (Palsgraf, Punitive Damages, and Preemption, 2012). She argued that the railroad employees acted with negligence when they were aiding the man, and it was neglect that led to her harm.
The plaintiff first got a jury verdict in which she was to be compensated $6,000, but the decision was appealed by the railroad. On Appellate Division, Palsgraf got 3–2 decision and the railroad appealed once more. In the New York Court of Appeals, the railroad won the case as the court overturned the original jury verdict. It was ruled that there existed no negligence as the employees did not have the duty of care to Palsgraf while they were assisting the man to board because the injury was unforeseeable harm from helping an individual with a package.
A dissent was however made stating that the employee negligently extricated the package thus dislodging it without clear knowledge of the contents in it, thus leading to the explosion which broke the scale and harmed plaintiff who was an intending passenger (Teacher, Law, 2013). The dissention held that regardless of the duty to plaintiff, the doer of negligent act should be held to account for the threat caused to other people’s safety and all its immediate consequences.
The ruling may outwardly appear to be unfair because
if the employees had been more careful with the package, the harm could not
have occurred. However, I agree with the ruling in that it is based on the law
of tort, specifically under the liability clause. The law holds that a tort
liability only occurs in the event that the defendant breaches a duty of care,
which such defendant is owing to the plaintiff, and in turn this act of
negligence leads to injury being sued for. This is the concept which was
accepted in the American tort law after the ruling made by the New York Court
of Appeals (Teacher, Law, 2013). This case shows how the law deals with the proximate
cause of the injury in connection to negligence.
David Ziemer. (n.d.). Duty of care remains thorny
issue in Wisconsin law. Wisconsin Law Journal (Milwaukee, WI)
Palsgraf, Punitive Damages, and Preemption.
(2012). Harvard Law Review, 125(7), 1757–2012
Teacher, Law. (November 2013). Palsgraf v Long
Island Railroad – Case Brief
Behavioral Finance and
the Psychology of Financial Decision
Behavioral finance and financial decisions have a big role in shaping critical decisions that people make. The study summarizes the facts about financial choices and the behavioral and psychological theories influencing them. We learn that people have predisposed cognitive constraints coupled with low levels of financial literacy, in such regard, their decision-making choices violate sound financial principles. The case studies teach us that most investors and managers over-extrapolate from past returns and trade, or they make decisions based on overconfidence and personal history.
We explain most of these behaviors based on behavioral finance theories like prospect theory, behavioral finance, and behavioral corporate finance. Many companies and institutions today shy away from traditionally defined benefit pension plans in favor of defined contribution plans, in such circumstance, the role of the financial adviser is gaining an integral value.
In this case study, a recent graduate from UMUC is employed to advise different clients on investment. The consultant delves into studying the biases in financial behavior that predict prospective theory. While applying the key concepts of behavioral finance, the consultant can recognize that the client (Violet) displays behavioral biases that impede optimal savings and consumption allocation. He can learn this by deducing from concepts of finance that assess how people organize their financial assets by creating separate slots for money designated for specific roles as well as other approaches such as mental accounting.
Expected Utility and Prospect Theory:
Unlike most of the economic
theories, Expected utility theory is the most preferred by scholars ((Shiller, Robert J.). The approach attracts people
because it has the best economical representation characterizing true rational
behavior in uncertain situations. However, application of expected theory is
criticized in many circumstances because of the systematical misrepresentation
of human behavior.
proved that Prospect Theory refers to a mathematically developed theory
that substitutes “value function” contrasted to “utility function” and
“weights” contrasted to “probabilities” in expected utility theory. Here,
people work to increase the weighted total value instead of utility such that
probabilities do not equal weight. Simply put, people view extremely probable as
certain but the improbable events as impossible.
In many circumstances, prospect
theory appears inconsistent with expected utility theory. To begin with, in
probabilities, utility is all linear but not value. Also, value is defined
regarding losses and profits, but utility depends on final wealth.
Contrary to expected utility
theory, prospect theory foretells that preferences depend on how a problem is
approached. In case the reference point defines the outcome as an advantage, in
this case, the resulting value function will be curved in, and those making
decision will be risk-averse. But if the
reference point’s outcome is seen as a loss, those making decisions will be
risk seeking since is a convex value function.
Violations of Expected Utility
The possible abuses of this theory
include the Allais paradox (certainty effect), and inflation of small
probabilities. As for Allais paradox, there is an extreme underweighting of
high probabilities. In such a case, it falls short of certainties such that the
travel time outcomes become extremely attractive. On the other hand, inflation
of small probabilities violation projects itself in the form of a set of
stated-preference route-choice challenges.
The definition of the value function lies on variations from a reference point,
and in most circumstances, it is risk aversion–concave for gains, convex for
losses. Similarly, value function is acute for losses than for profits. In this
case, the stress of decisions is less compared with the equivalent
probabilities, with few exceptions in the assortment of low probabilities. A value strategy deals with the
purchase of stocks that have low prices compared with the dividends, earnings,
book assets, or similar measures of significant value.
The Implications of Prospect Theory for the Efficient Market Hypothesis
An efficient market, based on the definition
by (Fama 1965), is characterized by a large pool of rational profit maximizers
who compete against each other to interpret the market prices of individual
securities in the years to come; out of which a large pool of the present
information is easily available to all participants. The prevailing competition
in such a market opens the effects of new information on the actual prices in
an instantaneous way. In such a way, the prospect theory sets in under the
circumstance that makes stock price unpredictable following a random pathway.
Provided that information flow is
unrestricted and quickly reflects in the stock price, the probability for the
future price to change will depend not on today’s price changes, but on
tomorrow’s news. Given that news is unpredictable, consequently, price changes
also turnout unpredictable, and this conforms to the principle of prospect
theory whereby people view extremely probable as certain but the improbable
events as impossible.
Market Hypothesis is characterized by the security prices that reflect
available information. It is based on the traditional view that investors use
rationale in executing the present information to increase the expected
Anomalies of Efficient Market Hypothesis’ set in when people feel there is
something wrong with the concept of Efficient Market Hypothesis. Under such
conditions, the rational approaches of investors lacks consistence. It is not wholly
right and must be analyzed alongside other human behavior approaches like the
prospect theory, overconfidence, or expected utility, or over and under
reaction, as well as the limits to arbitrage. Examples of anomalies as
expressed by prospect theory include the size, valuation, and the momentum
The Valuation Effect. Studies reveal that firms with higher P/B multiples are outperformed by those with low price/book (P/B) multiples.
The Size Effect. Studies predict that firms with smaller market capitalizations outperform those with large market capitalizations, disregard of the controls in their higher risk.
The Momentum Effect. Studies reveal that firms with good performance for the past six months to one year period outperform those that performed poorly over the same period.
Bias identification and how such behavioral finance concepts affect their investment decisions
The First Colleague: The Concept of Illusion of Control
The stated bias happens when people overly
justify their ideas. It describes people’s propensity to believe that they can
exert influence on the outcomes of action when, in the real sense, they cannot.
When this kind of bias occurs, people behave as if they can fully control their
situations than they actually can ((Ising, Alexander).
The first colleague responds by claiming to
know the technology industry and is determined to invest in them. While he
might have worked in the industry for a while, it is not justifiable to assume
that the circumstances will prevail in the long run. He is preoccupied with the
illusion of control bias.
However, the illusion of control bias can be
financially damaging since entrepreneurs might be motivated to trade more than
what is right. It may lead them to employ limit orders, maintain
under-diversified portfolios, or other related means just to express a false
sense of influence over their trade portfolios.
People who practice this bias find it hard
acceding with the irrationality and the changing nature of markets and the fact
that their expectation is a failed one. The outcome is a spiral of investment
catastrophe with the rationalization that while their belief is right, the one
who drove the buttons was so incompetent.
In the long run, the investor becomes
overconfident. The consequences of long-term investment may not be affected by
the immediate-term opinion, emotions, and impulses that frequently engulf
financial transactions. Rather, the success or lack of it emanates from
uncontrollable factors such as the prevailing economic conditions and corporate
The Second Colleague: Confirmation Bias
to the second colleague, the value of commercial property in the city has
maintained a 14% increase since the year 2000 reported a famous newspaper
article. Now, this is almost two decades down the line. It is very unbelievable
to assert that the value of the property has remained consistent over such a
lengthy period, and very few investors would settle on that. However, depending
on the interest of the reader and the prevailing circumstance, we can only
assume that the type of newspaper is biased towards such reports and that the
investor too is biased and love reading similar reports.
to confirmation bias, individuals are drawn to
information that substantiates their existing perceptions. It is just similar
when a person prefers watching news from a TV channel that represents his/her
political views while evading those that feature commentators of divergent
opinions. Similarly, people behave in the like manner concerning their
financial issues. Entrepreneurs believe in the market conditions will make them
walk toward information sources that validate such a belief.
While it is acceptable to attach an emphasis
to the consequences of our aspirations, for example, investing heavily in the
stock of the firm you’re working for, it poses significant risks when it comes
to diversification. If you should overcome confirmation bias, stress must be
levied on obtaining information from various.
The Third Colleague: Depicting Recency Bias
bias is a cognitive intrusion that encourages to perceive the most recent
information as more relevant compared to the old knowledge. However, this may
not be necessarily true. People base their investment decisions on how the market
has been recently performing. The exact state is seen on the third respondent
whose investment decisions in the Omega Corporation are drawn from the current
state of the company and industry. She denotes that from the decline of the
industry to capitalize on her investments since she presumes that case to
remain constant for some time.
Most entrepreneurs have the inclination to follow investment performance by investing more in the industry when it is peaking and just about to reverse. Given that the investment has been picking up recently, investors anticipate that to remain the case. However, based on the behavioral theory, it would be wrong for her to rely on this approach to make financial decisions. In most circumstances, people do extrapolate from recent performance and employ them as a signal of future performance which is very wrong. Consequently, entrepreneurs fall into the ploy of over-purchasing the now outperforming asset and under-own the now drifting asset.
Behavioral Finance and Investments
Siosan’s utility function. Contrasted with that assumed in traditional finance theory
Traditional finance posits that
humans are risk-averse, they love greater certainty than limited certainty and
have a perfect utility function. Conversely, behavioral theorists assume that
people display multiple characteristics and while they may be risk-averse, they
may also be risk-seeking, risk-neutral, or any blend of the three. Depending on
how things present themselves influences decision making.
The utility function measures an
individual’s preferences over a set of products, measured in units referred to
as utils. Utils exemplify the level of satisfaction of a consumer from choosing
a specific type or number of products. Traditional finance is built on the
utility theory with an assumption of diminishing marginal return. On the other
hand, Behavioral theorists assume that human beings don’t always
act in their best financial interests.
Appropriate in this
case study, the utility function specifies the satisfaction of an investor out
of all possible combinations.
For example, an investment with low risk and high return has a bigger utility
than that with high risk and low gain. This kind of function represents both
their welfare along with their preferences. Violet expresses utility function
that follows the behavioral approach. She wants to spend more. However, she’s
quite unaware of the circumstances of tomorrow reflected in her limited
investments. Under a traditional approach, Violet would either invest or not
invest at all. It would be that she has knowledge of the future market or she
does not, and if she lacks, her utility function would be concave. She would
spend less just to avoid the risks in the future.
Similarly, she purchases expensive
goods like cars and takes vacations for her satisfaction although, she feels
reluctant to incur debts. This is opposed to traditional finance that assumes a
diminishing marginal utility; Violet proposes utility function that will always
satisfy her interests and won’t diminish. Violet expresses some mix of
traditional and behavioral approach in some part, and traditional finance is
reflected in the way she detests debts. Albeit, she does little to avert those
debts, thus in part demonstrating a behavioral approach.
Siosian’s Behavioral Biases and how a rational economic individual in traditional finance would behave differently concerning each bias
Various cognitive predispositions cause
several behavioral biases or under-saving inclinations. This is according to
the perception by behavioral scientists who present several biases that emanate
from such predispositions by grouping them into three categories. Such include
preference biases, perceptions of prospects, perceptions on how to make
decisions bearing in mind the rest of variables, and price perceptions. The
typical behavioral bias presented in this case is the preference bias, and it
manifests itself in the form of the self-control, loss aversion, and
Costly self-control bias- Living for today
that many people struggle with self-control in various fields. It may present
itself through over-eating, under-saving, or over-snoozing, what we can call as
“living for today”. Approaches to costly self-control
also suggest that such people will value commitment such that they will choose,
and even pay, to limit their future decision in some way, in an attempt to
discourage their future over-consumption predilections.
in this case, study, Violet fits this model of costly self-control bias. We
find that she engages in costly endeavors like buying expensive cars and paying
for expensive meals in upscale vacation resorts. She does this at the expense
of investing. In fact, she would do all the best she can to live a luxurious
life while doing little on her mortgage and other investments. Her approach is
behavioral and contrary to how traditional theorists would behave since they
would fear the risks of tomorrow and would spend less on consumption and be
concerned about the future.
The bias is comparative to some reference
point like current consumption, or friends’ consumption. Loss aversion may also
be seen as a potential threat to consumers leveraging their savings rates.
People fear more to invest in their view of avoiding losses (Thaler, Richard, and Shlomo 164-187).
Loss aversion occurs when people easily
notice the reduction in investment portfolio more than how they view gains, and
this may be even when the profits are greater. They frequently get upset when
they lose money during the market recession such that they remember those
losses forever, but they would hardly remember the time they made 40-percent
increase, just the time they lost 30-percent. We can state that Violet has an
outspoken loss aversion bias when she says she detests making losses. Given
that she has very little investment but high expenditure, this might be the
reason why she rarely invests. Her approach reflects a traditional finance
theory that assumes people are risk-averse.
Siosian’s Retirement Portfolio and Justification
Violet’s retirement portfolio is such that
she maintains a minimal retirement plan where she deposits half the sum of
money coming from her annual bonuses and none-salary incomes. On the other, we
notice that she runs a very small mortgage and limited investments that can
sustain her. Basing on such decisions, her retirement portfolio is so
The Social Security Administration posits
that on average, a 65-year pensioner can expect to stay for the next 18–20½
years after quitting the job (Benz par 3).
Nonetheless, health advancements now make people stay for more years, and it
would be advisable that you schedule a retirement portfolio of 30 or more
years, and in such a case, the retirement saving plan becomes so essential.
Rather than just depositing money in the portfolio, it should be used in
investment opportunities to generate more wealth for old age. The objective is remaining invested—and
that implies having some part of the money assigned to stocks, but in the right
standing with other investments.
The objective of investing retirement
portfolio is to generate a mix of investments that merge to preserve capital,
create income, and expand. Such a combination of stock, bond and cash investments
must be in line with age, income, financial needs, time, and risk. For this
reason, we can say Violet’s retirement portfolio is very weak and inappropriate (Williams par 6).
Behavioral Corporate Finance
RE: Recent Behavioral Finance Literature dealing with the Board of Directors.
We can study behavioral finance
featuring the panel of executives under the concept of corporate governance ((Shivdasani, Anil, and
Marc Zenner). Management of financial institutions has taken a different
approach given the attrition of the significance of corporate governance in
guiding financial decisions. Albeit, this is very recent studied by
contemporary economists who assert the role of the board of governors in
guiding the company’s value creation and improved financial performance
particularly during this onset of consistent corporate flaws. Many companies
have since collapsed, examples of Lehman Brothers, Rank Xerox, and Enron just
to name a few, all blamed the faulty board of governors (Shivdasani, Anil, and David Yermack).
We have several lessons to learn
from this shrinking–specifically–there is one lesson that stands out clear–the
role of corporate governance in determining its capacity to contest positively
particularly in stormy environmental conditions where others strive hard to
Contemporary literature on
behavioral finance vis-à-vis corporate governance emanates from Adolph, Berle and Means (23) study where they assert
that, in reality, managers of companies sought their interest at the expense of
the shareholders’ interests. Their
investigation stressed the need for an effective plan to help aid in mitigating
the conflict of interests between company owners and managers. Therefore, while
the concept of corporate governance might appear new, it addresses typical
concerns present since time long (Ayuso, Silvia, and Argandoña 2-19).
Many countries, corporations, and
agencies across the globe have started to respond to the corporate flaws by
initiating a series of legislation and guidelines that guide decisions of the
board of governors in financial implications. Such rules are referred to as the
codes of best practices. These legislations guide the behavior and structure of
the board of directors while doing their monitory and supervisory duties (Shivdasani, Anil, and David Yermack).
Such codes, though, issued in
different regions, they have similar peculiarities regarding corporate culture
and general corporate environment, and alignment of the interest of parties
(Shareholders and Management). Corporate governance codification of governance
aims at mitigating the corresponding deficiencies in or lack of appropriate
shareholders shields (Shivdasani, Anil, and David
Your Future and Behavioral Finance Post 2008
Behavioral Finance Lessons during
and after the Great Recession
Several themes emerge drawing from
the issues aired by Stephanie pertaining behavioral finance during and after
the great recession. While the economic downturn attracted several consequences
on the corporate world, I believe the corporate directors and other
stakeholders had the mandate to prevent its occurrence, and correspondingly,
they can stop the reoccurrence of the same by studying behavioral finance
theories. The recession affected the entire globe since businesses collapsed,
and many people lost jobs and houses. However, I believe that if financial
behaviorist can avoid a repeat of the 2008 great recession, they should derive
from behavioral finance theories, Shefrin and Staman reports this in their
book, ‘Behavioral Finance in the Financial
Several factors drew the crisis, and such factors persist that
perpetuate the current crisis. They include; a weak government regulation,
investment banks that exceedingly leverage debts, and strained homeowners’
finances. We can explain the consequences of 2008 crisis from a financial
theory basis. While traditional economics base their assumptions of
rationality, they assert that people make rational economic choices as they try
to maximize their earnings. On the contrary, behavioral economists assume that
people make their financial selections based on their emotions psychological
conditions, as well as on cognitive errors.
The 2008 crisis is
best explained by the principles of behavioral economics. Here, we find a
correlation of the crisis with the overly optimistic lending behaviors of
people since such is connected to the stock market fluctuations even as
witnessed currently. Psychologists have effectively documented the propensity of
people to perceive the through
rose-tinted lenses, often referred to as the optimism bias.
Much of the 2008
crisis revolved around financial psychology. We can study psychology as part of
the behavioral finance theory. In essence, it incorporates aspects like
overconfidence, perception and cognition, aspirations, emotions, and culture (Morgenson, Gretchen and Joshua Rosner).
economists had warned of the inhibiting economic crisis. While banks,
businesses, and many corporations received such warnings, many were
overconfident in their investments. Overconfidence Before the great 2008
recession, economists warned that the economy was going under. Entrepreneurs
were such overconfident such that they hardly analyzed the risk of holding such
huge portfolios in mortgage-backed securities, provided the threat of being in
a bubble. Most of the homeowners took out loans just to satisfy the American
dream — they purchased during a bubble overconfident that housing prices would
skyrocket and remain persistent.
However, an increase in the housing
market, and the stock market, only works to raise people’s overconfidence since
they would ascribe the gains or losses they achieve as a result of their
proficiency in finance, although, it results from market moods.
Recency bias was one
implication that cultivated the crisis. That’s because entrepreneurs make
choices based on the most recent information. Decisions may be constructed on
the very latest feedback. Although, such information may not be primarily
relevant. During the time, investors overreacted because of the congress’s
finance rescue project.
emotions such as anger, fear, and sadness influence the type of decisions made,
including economic choices. More fearful people become risk-averse, but more
angry people become more enthusiastic to incur risks, even financial risks. As
for the economic downturn, people had others in mind to accuse of the financial
crisis. Take the example of Wall Street banks that became so angry such that
they easily took the financial risk to punish the offenders.
economists assume that the kind of financial errors made aren’t haphazard, and
the choice made too aren’t fundamentally rational. Rather, they are built on
psychological conditions such as cognitive errors and biases.
In our attempts to
evade the similar crisis in our market, we can learn a lot from the economic
downturn of 20008 and the related occurrences of the past. For instance, the
1974-75 economic recession almost resembled the 2007-2009 crisis. On the same
note, the twin Reagan-era recessions of the 1980s had profound consequences
such as joblessness and a subsequent S&L and sovereign debt crunch. The
1990s foreign currency crisis mandated an immediate discarding of the Long-Term
Capital Management without interfering with the worldwide economic system. Just
like Lipsky reports, the 2008 housing bubble was a consequence of a simmering
wrongly predisposes us to imagine we can see and analyze the future crises
pretty well the way we do the previous and establish strategies that would
impede future crises. However, we are limited to devise policies that can avert
future crises should we even be able to identify them since those who would
lose are in our paths standing against us. No doubt restraining bank leverage
would do some good; nonetheless, bankers have the smack to strangle it. Consequently,
we have a few decision left–our psychological fallibilities. Assessing our
psychological biases will work a great deal in averting and mitigating some
discussion above, behavioral finance case studies focus on determining the
clear-cut direction to which various market forces—such as rational analysis of
organization-specific and macroeconomic basics; cultural, human and social psychology
trends—affect investors and managers expectations and define their level of
Adolph, Berle, and Gardiner Means. The
Modern Corporation and Private Property. New York, NY, Macmillan, 1932.
Allais, M. “Le Comportement De L’homme Rationnel Devant Le Risque: Critique Des Postulats Et Axiomes De L’ecole Americaine.” Econometrica, vol 21, no. 4, 1953, p. 503. JSTOR.
Ayuso, Silvia, and Antonio Argandoña. “Responsible Corporate Governance: Towards A Stakeholder Board of Directors?” SSRN Electronic Journal, 2009, p.2-19. Elsevier BV.
Benz, C. “The Bucket Investor’s Guide to Setting Asset Allocation for Retirement.” News.Morningstar.Com, 2016, par 3.
Ising, Alexander. “Pompian, M. (2006): Behavioral Finance And Wealth Management – How To Build Optimal Portfolios That Account For Investor Biases.” Financial Markets and Portfolio Management, vol 21, no. 4, 2007, pp. 491-492. Springer Nature.
Lipsky, J. Overcoming the Great
Recession An Address to the Japan National Press Club, Remarks by John Lipsky,
First Deputy Managing Director of the International Monetary Fund, at the Japan
National Press Club, Tokyo, May 18, 2009. Tokyo: Japan National Press Club,
Morgenson, Gretchen, and Joshua Rosner. Reckless
Endangerment: How Outsized Ambition, Greed, And Corruption Led To Economic
Armageddon. New York, New York, St. Martin’s Griffin, 2012.
Shefrin Hersh, &Meir Statman. Behavioral
Finance in the Financial Crisis: Market Efficiency, Minsky, and Keynes.
Santa Clara: Santa Clara University, 2011.
Shiller, Robert J. “Bubbles, Human Judgment, and Expert Opinion.” Financial Analysts Journal, vol 58, no. 3, 2002, pp. 18-26. CFA Institute.
Shivdasani, Anil, and David Yermack. “CEO Involvement in the Selection Of New Board Members: An Empirical Analysis.” The Journal of Finance, vol 54, no. 5, 1999, pp. 1829-1853. Wiley-Blackwell.
Shivdasani, Anil, and Marc Zenner. “Best Practices In Corporate Governance: What Two Decades Of Research Reveals.” Journal of Applied Corporate Finance, vol 16, no. 2-3, 2004, pp. 29-41. Wiley-Blackwell.
Thaler, Richard H., and Shlomo Benartzi. “Save More Tomorrow™: Using Behavioral Economics To Increase Employee Saving.” Journal of Political Economy, vol 112, no. S1, 2004, pp. S164-S187. University Of Chicago Press.
Williams, Rob. “Plan, Allocate and Distribute: Structuring Your Retirement Portfolio for Your Income Needs.” Par 6. Schwab Brokerage, 2017.
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Econometrics of France – General overview of the economy, identifying the main aggregate demand components that drive GDP growth
Econometrics – France is acknowledged due to its efforts in fighting poverty and improving employment among the citizens (Ciccone & Jarociński, 2010). The country is comprised of many sectors which work collaboratively to provide services and products to her citizens (Facchini & Melki, 2013). The country has been a member of IBRD since 1945 and was among the first country to receive their loan. The country has a population of over 66.8 million people as per the 2015 report. In overall, the country’s GDP was $2.4 trillion in 2015, which the country reported that it was growing at an annual rate of 1.2%.
Analyzing key econometrics such as GDP may not generally be the most pertinent synopsis of accumulated monetary execution for all economies, particularly when generation happens to the detriment of devouring capital stock (Ciccone & Jarociński, 2010). While GDP gauges in light of the generation approach are for the most part more dependable than assessments incorporated from the pay or consumption side, distinctive nations utilize diverse definitions, techniques, and reporting guidelines (UKDS, 2016). World Bank staff survey the nature of national records information and now and then make acclimation to enhance consistency with worldwide rules. All things considered, noteworthy disparities stay between universal guidelines and real practice (Sly & Weber, 2016).
Numerous measurable workplaces, particularly those in creating nations, confront extreme confinements in the assets, time, preparing, and spending plans required to deliver solid and far reaching arrangement of national records insights. Among the challenges confronted by compilers of national records is the degree of unreported financial action in the casual or optional economy. In creating nations a huge share of farming yield is either not traded (on the grounds that it is expended inside the family unit) or not traded for cash (Sly & Weber, 2016).
Private usage has usually been the driver of money related improvement in France and it coordinated the impact of the fiscal crisis in 2009. Regardless, in 2012, private use contracted unprecedented for over two decades in the aftermath of the crisis, amidst purchaser assurance levels that had debilitated and direct money related improvement rates (Facchini & Melki, 2013; Ciccone & Jarociński, 2010). After government use, which has remained by and large stable in the earlier decade, wander is the greatest portion of France’s budgetary advancement.
Econometrics theory was the GDP portion that was hit the hardest by the fiscal crisis in France and changed wander dove 9% in 2009. Taking after a ricochet back to 1.9% advancement in 2010, hypothesis has lamented starting now and into the foreseeable future and it contracted 0.8% in 2013. Moreover, France is a net shipper, in any case, the outside division littly affects the economy (Ciccone & Jarociński, 2010).
Quickly, organizations are
the guideline benefactor to France’s economy, with more than 70% of GDP
originating from this section. Immense subdivisions of organizations join the sparing
cash and budgetary, security and tourism parts. Creating speaks to somewhat
more than 10% of France’s GDP and France is an overall pioneer in the avionics,
auto and lavishness stock undertakings (Ciccone
& Jarociński, 2010). Disregarding the way that agriculture speaks to around 2%
of French GDP, it is seen as a fundamental industry in France and is frequently
the beneficiary of government gifts or protectionist plans (Facchini & Melki, 2013).
Econometrics – How well the country has managed to achieve the four macroeconomic objectives of high and stable economic growth, low unemployment, low inflation and avoidance of large balance of trade deficit.
There is a run of the mill
see, as regularly as could be expected under the circumstances watched or
reported by different economists is that France has a unique approach to her
economy and operations. In fact, France is delineated as a something close to a
revolt economy, where institutions and different staffs are in frequent strikes
especially on matters that affect them collectively (Ciccone & Jarociński, 2010).
Like most myths, the
intellectual economy myth – , in light of current conditions, executed by
people with a grievance, or by people who have visited the country due to
either economic interest or their personal interests. Different economic
overviews or rather arguments have come up and each shows different result from
the previous For each one of its deficiencies – and its qualities – however,
all the economists tend to concur that France economy is healthy and well
performing above average especially when compared with the G20 terms (UKDS, 2016).
Changing France is to an unprecedented degree troublesome to the time when some are imparting that nothing not another French resistance is required. According to a 2013 econometrics report by IMF, Hollande government was aiming to to cut down different demands by the French economy (Facchini & Melki, 2013); however this was qualified by a notice that more should be done to cut open spending, instead of raise responsibilities. Hollande has vowed to go basic on costs, to forsake putting any further un-convincing weight on French industry (Sly & Weber, 2016).
The failure of changing the
current situation in France, has become one of the primary challenge that is
undermining the country from attaining effective budgetting (Facchini & Melki, 2013); However, the approach that the government have left
many economists talking, for instance, a 2013 report argued the following
statements in regard to the France government.
a) The working hours in most
businesses located in France are mostly shorter than the time that European
countries work. For instance, when in Germany the average working hours per
year are 1904 while in France they are 1679.
b) Most employees in France
retire earlier than employees in Germany, the typical retirement age in Germany
is 62.3 while in France it is 60.3 and 64 in the United Kingdom.
c) In France, the employees
take many events, and holidays off work than employees in Germany and UK do,
specifically they take 7 days more than Germans do and 36 days more than
British employees do. However, despite all the fact, the France economy remains
competitive (UKDS, 2016).
One of the fundamental
issues identified with France’s work markets is unmistakable and interminable
business district that affiliations end up in when they endeavor to end a man
from staff. Many say the fear of putting in two years in a business tribunal is
a colossal execute for all the more little affiliations, who are in this way
more slanted to spread brief contracts instead of persevering ones. While
attempting to settle this Hollander will ensure to past what many would
consider workable for a laborer to hold up a disagreeing of out of line
dismissal, which starting now remains at two years after they were surrendered.
In an offer to urge boss to
contract more staff, Hollande game-plans to offer a “securing prize”
to self-representing endeavors. The course of action is to give some place
among 1,000 euro and 2,000 euro for every power who is chosen with a
remuneration of up to 1.3 times the national scarcest wage. The show is
kick-start shrinking by adjusting the gathering coordinated wander holds
commitment costs that may startle away executives, with Hollande’s party as to
it to be much speedier than changing France’s social obligation laws for low
paid labourers (Sly & Weber, 2016).
The report released by the
business serve in France exhibited that the strategy approaches will target
low-talented authorities, and will especially focus on change divisions, for
instance, mechanized and environment. The spending strategy for plan has been
connected by 80 million euro in 2016.
The present year’s measures
will cost €2 billion, which the mister of reserve said would be
“reimbursed in full” by meander holds from elsewhere. Hollande
ensured that the measures would not be financed by cost rises.
A blend of fitting optional
measures and altered stabilizers has padded the effect of the emergency. The
meander force diminishment presented in the 2010 spending course of action is
comparably welcome, yet extra spending ought to now be confronted. Laying out
and plainly passing on a significant multiyear leave system is a need. The
required solidifying addresses a chance to re-adjust open funds by cutting
wasteful spending, developing legacy, property and carbon strengths and
progress changing the favourable circumstances framework.
Identify and critically analyse 3 economic/political/demographic trends (Econometrics) that the country is experiencing and what the implications of these trends could be in the future.
Demographic trends in France
In 2030, the number of
inhabitants in France will achieve 67.9 million, an expansion of 5.8% from 2015
(UKDS, 2016). Moderately high, yet declining, birth and ripeness
rates, close by positive net movement, imply that France’s populace will build
speedier and age slower than most nations in Western Europe in 2015-2030.
France is a standout amongst the most urbanized nations in Western Europe and
this will keep on being the situation in 2030 when 91.8% of its aggregate
populace will be comprised of urban occupants.
The long haul
steadiness of richness and birth rates (right around 800,000 yearly births,
regardless of slight falls in 2011 and 2012) implies that the base of the French
populace pyramid is still very expansive (Baltagi,
characteristic increment is still unmistakably positive, the maturing procedure
is reflected in a rising number of yearly passing’s as the populace with the most astounding
dangers of biting the dust becomes bigger.
in first social unions is measured by the entire of rates (total first marriage
rate) or the general probability of first marriage. Some place around 1972 and
2012, the total first marriage rate tumbled from 91.7 to 46.6 first social
unions for each 100 men and from 94.8 to 47.5 first social unions for every 100
women (Baltagi, 2011). Probability data show a
strong decrease in the degree of social unions between never-married
individuals up to age 50: it tumbled from 90 first social unions for each 100
never married men in 1972 to 53.5 in 2012, and from 93.4 first social unions
for every 100 never-married women to 56.3 for that years
the consumption function for your chosen country and comment on your results
Yt = a + bXt
Yt is aggregate consumption of the country in year t;
is aggregate income (GDP) of the country in year t;
a is the
linear intercept and b is the
[Note Aggregate Consumption (Y) = GC + PC
(government consumption expenditure plus Household consumption expenditure)
23.9 + 07
(ii) Write the estimated
regression equation and comment on the results of the regression analysis
Taking values from the graph, we make a table consisting values of the recent 5 years (Excel Sheet below)
Use the formula
Where a=a and b
a = -138.67
Insert the values in the equation
Yt = -138.67 – 515.123 Xt
Calculate the confidence interval for b at 95% confidence interval.
-512 * (1 – 0.95)
CI = 25.6
Test the statistical significance of b
the error index
Test the statistical significance of the model
The values are close to the mean
of X have less leverages that outliers towards the edges.
(vi) Identify whether the error
terms of the model are autocorrelated and/or heteroskedastic.
The error was auto-correlated, with 1.00 error index, which was explained by the value estimation and rounding off
Baltagi, B. (2011). Econometrics (1st ed.). Berlin: Springer.
Ciccone, A. & Jarociński, M. (2010). Econometrics & Determinants of Economic Growth: Will Data Tell?. American Economic Journal: Macroeconomics, 2(4), 222-246.
Facchini, F. & Melki, M. (2013). Efficient government size: France in the 20th century. EconometricsEuropean Journal Of Political Economy, 31, 1-14.
Sly, N. & Weber, C. (2016). Bilateral Tax Treaties, Econometrics and GDP Co-movement. Review Of International Economics.
UKDS,. (2016). Econometrics UKDS. Stat Metadata Viewer
Measurement is a very critical aspect of any psychology topic or basically, in all psychology sub- areas. Every psychologist is usually concerned with measuring the children`s intelligence, creativity and also in measuring their moral development. The psychological tests are used to help the clients learn what careers are best for them. This is based on the interests and the abilities of the clients. Similarly, in this course, description of how learning occurred and how learning can be facilitated in the near future. Therefore, psychological testing is the use of psychological tests, which are ideally designed to be an objective and the standardized measure of a sample of behavior (Garber and Simon, 2017).
Psychological assessment is the main process of testing that makes use of a combination of techniques to help realize some given hypothesis about a person and their behavior, personality, and capabilities. From the description of psychological assessment, it has been defined as an act of performing a psychological battery on an individual. It is also the process of psychological testing (Garber and Simon, 2017). This research paper will, therefore, address different types of psychological tests, various theories in psychological tests and also a variety of standardized tests of intelligence, personality, achievement, interest, neuropsychology and several other areas of psychological testing as described in the Course description.
Psychological Testing Principles
Emphasizes the principles by which psychological tests are conducted is quite important. There are several contradictions when it comes to the use of psychological tests. Psychological tests should be well examined to ensure that, there is valid, appropriate and also the fair use of psychological tests.
There are key concepts that are discussed in this research paper and these include studying the importance of psychological testing (Garber and Simon, 2017). Psychological testing allows researchers and psychologists to make concrete decisions about people, early school placement, military job selections and also in other fields like college entry behavior. Secondly, based on our course teachings, psychological testing allows us to vividly describe and also understand an individual`s real behavior (Garber and Simon, 2017). Below are several other additional reasons for carrying out psychological testing/ assessment;
-It is a measure of a person`s personal attributes- Psychological testing helps the learner to understand an individual`s behavior. Understanding a person`s behavior is quite important since it helps researchers and learners realize/ judge a person based on his/ her way of behaving.
It is a way of measuring performance- Individual performance is quite important. People would often need to be assessed how they have performed within a specified period of time. Therefore, in this case, psychological testing would help us realize a persons performance in his or her field of specialty. This is one of the key reasons why psychological testing was devised and should be embraced.
Saves time. It is a
time-saving means of evaluating an individual`s performance in a certain field.
It is, of course, the
most economical means of achieving a person`s performance.
Similarly, the process
of psychological testing is basically scientific. Therefore, testing is
expected to have the best results in any experiment.
are basic psychological testing terms that have been explored in this course. As
part of the course objectives, it is important to define, describe and also identify
these basic testing terms (Garber and Simon, 2017). Such terms include theory,
assessment, attitude, personality, measurement, validity, reliability,
operational definitions, statistics, average, central tendency, correlation,
bias, battery, criterion, decile, standardization, derived score, Level of
significance, sample, prediction, randomness, measurement scale,
stratification, norms, distracters and factor.
part of this research paper, definitions of some of these terminologies will be
analyzed. For instance; -Theory- theory refers to an idea that is used to
account for or even justify a psychological situation.
Sample- it refers to a
set of collected data that is used for psychological testing and analysis.
Measurement scale- it
is the basis that is basically used for the psychological tests.
research paper also addresses uses and various varieties of the personality
tests. The main aim of this is to determine which tool is the best for
predicting and also measuring the behavior of an individual/ a person
(Rappaport et al, 2017). Establishing the validity of the personality tests is
again quite important in psychology. Personality tests are an example of
psychological tests that have been handled in this course. It is usually used
to measure and also evaluate the behavior of a person in school and several
other social places. This test basically identifies differences in personality
between persons who are being subjected to the similar test.
Personal tests are basically the best psychological tests to use according to a number of psychological researchers. Again in this research paper, the question, “which is a better tool to predict the behavior of an individual, is it the personality test or the projective test?” This is one research problems that have been identified in the course. The research problem can, therefore, be reviewed (Garfinkle and Richardson, 2018). This can be reviewed in terms of whether the personality tests, observation and also the inventories are more reliable and also predictive in determining the behavior of a person.
The hypothesis for this research paper is based on using personality inventories and the projective tests and determining which is better in assessing of a person`s behavior. Using research design and the descriptive correlational methodology is the best approach for the researcher. Descriptive psychological tests are therefore tools that are used to measure and predict the behavior of humanity (Garfinkle and Richardson, 2018). However, both personality tests and the projective tests are used to assess the personalities of individuals in different environments, for instance, school and community. Psychological tests can be applied in various instances. For example, organizations worldwide are busy striving to be successful in the best ways possible.
Aptitude testing is another form of testing that has been described in the course. It is the second widely used form of psychological test after the personality test. It can interchangeably be used with the term ability. The concept of ability in the aptitude test can be described as a general character of an individual that can ideally facilitate the learning of the various skills.
From aptitude definition, it is then easier to state that, psychological tests are basically standardized measures of a small sample of an individual`s behavior (Garfinkle and Richardson, 2018). For instance, a chemist can infer the characteristics of a large compound by only testing a few cubic centimeters of a liquid. Similarly, quality engineers only test a small sample of the finished products and not all of them. The same concept is applied by psychologists in coping with test results. They only base their work on a small sample to come up with results for a larger population.
aptitude testing, there is a need to establish the difference between aptitudes
and the abilities. Ability tests are basically given with an option of giving a
dire prediction about a person`s future success in his or field of work, mostly
occupational activity or even group of activities. However, it’s possible to
use the term aptitude in place of the term, ability (Garfinkle and Richardson,
2018). There are several ways of describing aptitude tests. These include being
described in the mode in which they are being presented and also be grouped
based on their content.
testing and assessment are conducted for a number of reasons. For instance;
Detection of specific
behavior- psychological tests are basically used to determine the abilities of
Psychological tests are again used to determine the individual differences.
This ideally shows the difference in a person`s ability. The person`s
performance is also determined through psychological testing (Rappaport et al,
To diagnose by the
psychological test- These tests are also used in clinical psychology. This can
be used to diagnose mental disorders among individuals.
Psychological tests basically help researchers to identify people into
different categories. These categories can be normal and abnormal, criminal and
innocent, intellectual and mentally disabled and lastly, the able and the disabled.
-understanding- this is another function that psychological testing does. It,
therefore, provides standardized knowledge about the person`s behavior,
aptitudes and also capabilities.
Psychological testing can be used for such measures as program evaluation
(Kaplan and Saccuzzo, 2017).
psychological researchers use psychological testing for the purpose of
research. It, therefore, provides knowledge about the person`s mental level (Chukhraiev, 2017).
Psychological testing is used during military selection.
Chukhraiev, N., Zukow, W., Chukhraieva, E., & Unichenko, A. (2017). Integrative approach to reduction of excess weight. Journal of Physical Education and Sport, 17(2), 563.
Garber, B. D., & Simon, R. A. (2017). Individual Adult Psychometric Testing and Child Custody Evaluations: If the Shoe Doesn’t Fit, Don’t Wear It. J. Am. Acad. Matrimonial Law., 30, 325.
Garfinkle, M. S., & Richardson, S. L. (2018). Psychological Testing for Psychoanalysis. Psychoanalytic Trends in Theory and Practice: The Second Century of the Talking Cure, 269.
Kaplan, R. M., & Saccuzzo, D. P. (2017). Psychological testing: Principles, applications, and issues. Nelson Education.
Rappaport, S. R., Gould, J., & Dale, M. D. (2017). Psychological Testing Can Be of Significant Value in Child Custody Evaluations: Don’t Buy the Anti-Testing, Anti-Individual, Pro-Family Systems Woozle. J. Am. Acad. Matrimonial Law., 30, 405.
Approaches for all research, whether qualitative or quantitative, requires interpretation and contextualization by the researcher. Narrative statements or a series of figures will not give the answer to the research question or statement (hypothesis) by themselves.
Therefore it is important to choose a research approach (or
approaches) that will give the correct ‘type’ of data to answer your research
A number of approaches are available when gathering data,
but these don’t have to be used in isolation. For instance a focus group can
elicit viewpoints which may need exploring further will a larger research
cohort using a closed question survey. For this reason, it is important to plan
your approach thoroughly before you start, to ensure your research question can
be answered and to let your respondees know what is expected of them.
Don’t forget that whichever research method is chosen, it
needs to have a robust ethics form that has been approved before contacting
participants and starting to gather data.
Approaches that can be used:
This is where a group of people discuss a particular
problem, facilitated by the researcher. The group interaction and the sharing
of ideas not only means that rich and meaningful data can be pulled out from
the focus group but also during the course of the focus groups, ideas can be
co-constructed between participants which can be used to further the depth of
When using structured interviews, the questions are written
beforehand and are strictly adhered to regardless of the answer.
Whilst pre written questions are also used in semi
structured interviews, this approach allows for the researcher to spontaneously
build on answers given, allowing the base question to be answered but also
elaborating on any areas which may impact on the research answer.
Surveys are an excellent way to reach a large number of
people. This approach works if there is a clear idea of the questions that will
elicit research to support the hypothesis. A mix of qualitative (open text
fields) or quantitative (set questions and answers) can be used.
This approach is valuable when more in depth research is
required and allows the researcher to investigate the issues in the place or
time that they occur. The researcher will observe the participant and often
will have follow up meetings to clarify or build on the information gained.
This method works on the ideology that it is less important what is said, then how it is said. The story a participant will tell may not be
entirely factual but it will be their perception of what happened which gives
greater in sight. This approach is linked to discourse analysis methodology.
Appreciative enquiry (AI)
AI shifts the traditional focus of looking for the negative
impacts of an issue and instead approaches the issue from a positive
Ethnographical methodology requires the researcher to embed
themselves in the participatory groups own setting, for a sustained time in
order to observe, talk and learn from participants.
There are a number of branches from the ethnographic
More than just an autobiographical account, an
auto-ethnographic researcher should reflect on events and use these to uncover
meanings and feelings that a purely narrative account may miss.
Using video, photos and artefacts as the main source of
research data rather than supplementing it.
Researchers using this methodology are involved and
participants or ‘lurkers’ in virtual groups and communities. Ethical issues
need to be carefully considered with this approach.
Soft Systems Methodology (SSM)
Instead of studying isolated issues, SSM is a holistic way
of looking at and solving problems. These are often presented in mind map
formats, making this a good research methodology for visual learners.
Questions to ask before choosing a research approach:
Will we learn more about this topic using
quantitative or qualitative approaches?
Which approach will produce more useful
Which will do more good?
Taken from: Cousin. Glynis, (2009) Researching Learning in Higher Education. Routledge. UK.
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