Question

Suppose you are making a decision to invest in the Stock market. The characteristic of the stock market is that it keeps on fluctuating and the investor takes the risk in investing.

a) Is the decision of investing in the stock market rational or bounded rational? Please give logical reasoning to support your answer (5 marks) (200 words minimum)
b) What assumption of rational and bounded rational decision making can be analyzed in this situation and how? Discuss critically each assumption in three lines. (5 marks) (200 words minimum)

Answer 1

Answer:

other words, investors are not completely rational while making investment decisions. Their decision-making process is subject to several cognitive and psychological errors. ... This is what Herbert Simon has called —bounded rationality“

The main types of market risk are equity risk, interest rate risk and currency risk. + read full definition are equity risk. + read full definition, interest rate risk. It is the risk of losing money because of a change in the interest rate.