Lincoln学长简介：

BUSS1001全学院第一（Overall 92）

FINC2012 全学院第一（Overall 93） （本次essay有牵涉到Finance的知识）

PS：由于Lincoln学长是新西兰长大的ABC, 以下攻略他大部分用英文表达，虽然看起来稍微费劲，其实对于大家理解和应用某些上课提及的术语和关键词有好处哦！

Introduction

Here, one should give a brief introduction of this report.

What are you trying to achieve?

You are trying to compare the Prospect Theory and the Expected Utility Theory. What do they mean, what are they used for and how they are different.

Secondly, you are also trying to identify heuristics that are present in investment decisions. Or put simply, how does psychology and personal behaviours affect investment decision making

You are not trying to cover all these points in the introduction, rather, you are telling the marker what to expect.

Part 1

First, you should briefly outline why we need the prospective theory and the expected utility theory. These two theories are in fact as similar as they are different. The prospective theory was built upon the expected utility theory for one.

So why are these theories needed? Well put simply, they are needed so we can explain why investors do not simply chose the investment decisions where VALUE (i.e. profit) is maximized.

The first difference between the two theories was already stated in the question. Expected Utility theory is a normative approach, which is because it was originally envisioned using mathematical equations. Economists realised that people do not rank investments simply on the expected value. Expected value ignores the fact that people have different risk appetite, and the expected utility theory takes into account this difference through the calculation of utility.

Prospective theory builds upon the Utility theory, in that, prospective theory is no longer a mathematical model that calculates utility. Instead, it takes into account an investment heuristic - loss aversion. Put simply, investors would feel more pain if they lost 100 dollars than they would joy if they gained 100 dollars.

A second investment heuristic the prospective theory takes into account is that people are more concerned with low probability events than they ought to be, and do not pay enough attention to high probability events.

An ACAR can be built by arguing where prospective theory and utility theory are similar, i.e. they both try to explain why investors make certain investment decisions, and where they are different, i.e. one is a normative approach, and the other is a descriptive approach. I would be cautious in concluding whether one is better than the other, as this is not the point of the first question. Rather, a better conclusion would be that both are different methods, and can be used successfully in different situations.

Another possible method, is to build an ACAR upon what the main difference between the two theory is. Although this may not be an easy argument to develop when compared to the above suggestion.

Here is a good journal article to get everyone started.

Expected Utility Theory Vs. Prospect Theory: Implications For Strategic Decision Makers

Author : Terrence C. Sebora and Jeffrey R. Cornwal 第三页

这里还有一篇网上的文章，可以参考，但是别用这个reference。

http://www.scribd.com/doc/56527744/Comparison-Between-Expected-Utility-Theory-and-Prospect-Theory-in-Behavioral-Finance#scribd

Part 2

Before we answer this question, we should find a way which would allow part I and part II to flow into each other. One aspect the prospect theory takes into account, and the expected utility doesn't, is loss aversion, and putting too much emphasis on low probability events. The existence of these two heuristics is why we need the prospect theory.

So the first part of this question asks us to identify potential investment heuristics and biases. That is exactly what we will do below.

We have already identified two heuristics above, here are a few more you could use:

1. Investors places too much weight on a small number of recent events

2. Investors are too conservative and slow when updating their beliefs, i.e. they may realise the market is going down, but the magnitude of change predicted is often too low (and vice versa)

3. Investors are overconfident, they overestimate the odds of the future turning out as they predict, and underestimate what they are not predicting.

   
   

Here are a few more, which should be more than enough for this part of the question.

http://conspecte.com/Finance/heuristics-and-biases-related-to-financial-investments.html

I would pick less than 5 for this question, and develop them in depth.

For each example, I would

1. Name the heuristics/bias

2. Define the heuristics/bias you have named

3. Provide an example of the heuristics, and how it affects real life decision making

4. Using literature, argue whether this heuristics has a significant impact on the investment decisions, why or why not. This is the best possible way to develop ACAR into this section.

Conclusion

Your conclusion should be brief. This is where you would usually briefly state the findings of your report.

So what did you find through your report? First, you should briefly outline the expected utility theory and prospect theory and the difference between the two. This should be no more than 3 sentences.

Secondly, you listed a few heuristics and biases present in investment decisions, which the above two theories attempt to explain.

其他注意事项

Word Limit：

Submit 之前自己查一查， 不要去相信turn it in。 自己用鼠标， 把最开头的introduction headline, 一直拉到 reference list， 看有多少个字。 reference list 里面的reference 是不算字数的。

Reference method:

所有reference 都参考BSRG:

http://sydney.edu.au/business/__data/assets/pdf_file/0007/91681/BSRG_10ed.pdf

你参考这个， 是不可能错的。 交之前， 尽量让朋友看一眼。

多少个reference 呢？

一般情况下， 1500字的report， 你怎么也要有个十几个reference。 不然marker 有可能说你没有做够research。

找literature 可以用:

Proquest Central and Business Source Premier

这两个database 都可以在我们library 找到

http://www.library.usyd.edu.au/databases/finance.html