Browsing by Subject "Rationality"
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Item Open Access How Evolution, Stories, and Irrationality Influence Decision Making in Financial Markets: Analyzing Whether We Can Leverage Our Innate Traits and Heuristics to Improve Outcomes(2020-12-13) McCarthy, JosephOne of the most commonly asked questions in investing is whether or not it is possible to achieve excess returns in the financial markets. To give a somewhat simple answer, for most investors a basic low-fee passive ("static") index fund portfolio is the best investment strategy since it outperforms nearly all advanced active indexing methodologies, such as "dynamic indexing," over the long-term due to factors such as high fees, high turnover, and poor asset selection (McCarthy and Tower, 2020b). Yet, even so, it does appear that it is possible to beat the market on a single trade through skill or luck as there are real inefficiencies and mispricings that occur among different investment vehicles at certain points in time (Lo, 2017; Malkiel, 2012; Ellis, 2017). This is especially evident in a number of endowment models, such as Yale's under David Swensen, which have successfully embraced risk through alternative investments – e.g., private equity – by focusing on longer time horizons and subsequently achieved very impressive results (Chambers, Dimson, and Kaffe, 2020; "Lessons from the endowment model," 2020). However, the fact that the financial markets are a zero-sum game with so many highly intelligent and highly informed investors constantly competing against one another makes it exceptionally difficult, and rare, to achieve excess returns over the long-term (Lo, 2017; Malkiel, 2012; Ellis, 2017). Indeed, the only way to truly beat the market on a regular basis is to constantly adapt your strategy in order to prevent your competitors from mimicking your successful techniques and thereby diluting your overall alpha (Lo, 2017; Malkiel, 2012; Ellis, 2017). Yet, even if we are able to consistently modify our approach as required, there are natural human biases relating to our evolutionary development; our collective stories; and our rationality / irrationality that can influence our decision making. In the following paper, I intend to provide an in-depth analysis of these three areas, and subsequently share a series of current best practices and frameworks from Behavioral Decision Theory (BDT) and Judgement and Decision Making (JDM) fields – e.g., "The Good Judgment Project" and "The Wisdom of Select Crowds" (Mannes, Soll, and Larrick, 2014; Mellers et al., 2014) – which if properly applied in a thoughtful and deliberate manner could offer a meaningful improvement in analysis, forecasting, decision making, and outcomes for both leaders and their organizations in the investing arena.Item Open Access Irresistible Reasons, Immovable Minds, and the Miracle of Rational Persuasion(2014) Martin, StephenMy dissertation is about good arguments and why they fail to persuade. Besides being a common experience of everyday life, this is an old worry of Plato's that continues to motivate two contemporary lines of research. The first concerns what makes something a good argument, and the second concerns what a mind must be like to be moved by one. Together, these lines guide my project and divide it into two parts. Part I is about good reasons, specifically epistemic reasons. In my first chapter, I defend epistemic instrumentalism, the position that epistemic reasons are good reasons only relative to one's epistemic preferences. I acknowledge that epistemic instrumentalism opens the door to a terrible proliferation of incompatible preferences, but claim that this is merely a potential problem, and not an actual problem to be solved. In my second chapter, I discuss the nature of reasonhood, and argue, contrary to orthodoxy, that there is no compelling reason to accept the skeptic's claim that, because of the inconsistency of three very basic epistemic preferences, it is impossible for any position to be conclusively safe to hold. Part II is about immovable minds. Immovable minds are minds that are unpersuaded by good reasons. In my third chapter, I argue that for good reasons to be persuasive, the properties that make them good reasons must be identified, through habituation, with other desirable qualities like pleasure or success. Identifying the merits of good reasons with other rewards cultivates intellectual character, and intellectual character, as I argue in my final chapter, remains worth cultivating, notwithstanding situationist doubts about the existence of character and intuitionist concerns about human rationality.
Item Open Access Undeterrable Ideologue or Deterrable Pragmatist: An Assessment of the Rationality of the Islamic Republic of Iran’s Conflict Initiating Behavior(2014-04-30) Granlund, MarcusI seek to analyze Iran’s conflict initiating behavior by means of assessing the state’s national capabilities relative to its primary targets of aggression in order to discern whether the Islamic Republic of Iran has experienced a tendency to initiate conflict against relatively more powerful states. Rooted in the fundamental assumption that a rational state does not initiate conflict against other states that are significantly more powerful than it is, the analysis is conducted in the hope of shedding light on whether Iran’s conflict-initiating behavior has been rational post-1979 in order to determine the state’s deterrability. The study is conducted by first employing a cross-temporal within-case study that looks at fluctuations in the dyadic balance of power in militarized interstate disputes (MIDs) initiated by Iran across four distinct periods of time: 1957-1967, 1968-1978, 1979-1989 and 1990-2000. Secondly, Iran’s fluctuations are compared to those experienced by two other revolutionary authoritarian regimes, the Soviet Union and China, during the time period that extends from two decades before their respective revolutions to two decades after. Lastly, I create a control variable comprising 20 randomized MIDs where the initiator’s Composite Index of National Capability (CINC) score falls within the range of Iran’s over the course of its history during the period 1957-2000. The study finds that Iran’s conflict initiating behavior became significantly less rational in the decade immediately succeeding the revolution, but that it thereafter became increasingly rational and less hostile. Importantly, Iranian conflict initiations have, on average, occurred within the confines of rational behavior across each of the four time periods considered, including post-1979. The Islamic Republic thus fits the mold of a deterrable pragmatist rather than an undeterrable ideologue.