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Individual
Irrationality and Aggregate Outcomes
--
Ernst
Fehr and Jean-Robert Tyran
There
is abundant evidence that many individuals violate the rationality
assumptions routinely made in economics. However, powerful
evidence also indicates that violations of individual rationality
do not necessarily refute the aggregate predictions of standard
economic models that assume full rationality of all agents.
Thus, a key question is how the interactions between rational
and irrational people shape the aggregate outcome in markets
and other institutions. The authors discuss evidence indicating
that strategic complementarity and strategic substitutability
are decisive determinants of aggregate outcomes. Under strategic
complementarity, a small amount of individual irrationality
may lead to large deviations from the aggregate predictions
of rational models, whereas a minority of rational agents
may suffice to generate aggregate outcomes consistent with
the predictions of rational models under strategic substitutability.
©
2005 American Economic Association. This working paper had
earlier appeared in The Journal of EconomicPerspectives,
Vol. 19, No. 4, Fall 2005, pp. 43-66. Reprinted with permission.
Why
Individual Investors Want Dividends
--
Ming
Dong, Chris Robinson and Chris Veld
The
question of why individual investors want dividends is investigated
by submitting a questionnaire to a Dutch investor panel.
The respondents indicate that they want dividends, partly
because the transaction costs of cashing in dividends are
lower than the transaction costs involved in selling shares.
Their answers provide strong confirmation for the signaling
theories of Bhattacharya (1979) and Miller and Rock (1985).
They are inconsistent with the uncertainty resolution theory
of Gordon (1961, 1962) and the agency theories of Jensen
(1986) and Easterbrook (1984). The behavioral finance theory
of Shefrin and Statman (1984) is not confirmed for cash
dividends but is confirmed for stock dividends. Finally,
the results indicate that individual investors do not tend
to consume a large part of their dividends. This raises
some doubt as to the effectiveness of the reduction or elimination
of dividend taxes in order to stimulate the economy.
©
2005 Elsevier B.V. This article was earlier published in
the Journal of Corporate Finance, Vol. 12, pp. 121-158.
Reprinted with permission.
A
Study of Fund Selection Behavior of Individual Investors
Towards Mutual Funds: With Reference to Mumbai City
--
Kavitha Ranganathan
Consumer
behavior from the marketing world and financial economics
has brought together to the surface an exciting area for
study and research: Behavioral finance. The realization
that this is a serious subject is, however, barely dawning.
s seem to treat financial markets as an aggregate
of statistical observations, technical and fundamental analysis.
A rich view of research waits this sophisticated understanding
of how financial markets are also affected by the "financial
behavior" of investors. With the reforms of industrial
policy, public sector, financial sector and the many developments
in the Indian money market and capital market, mutual funds,
which has become an important portal for the small investors,
is also influenced by their financial behavior. Hence, this
study is an attempt to examine the related aspects of the
fund selection behavior of individual investors towards
mutual funds, in the city of Mumbai. From the researchers
and academicians point of view, such a study will help in
developing and expanding knowledge in this field.
©
2006 IUP . All Rights Reserved.
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