Given the new economic and market realities prevailing since the 2008 great rece

Question

Given the new economic and market realities prevailing since the 2008 great recession – including employment opportunities for yourself as a business executive – first list, and then explain in needed details the top four (4) Behavioral Finance lessons that you learned in this class that can be of value to you going forward. I emphasizegoing forward because my goal in this question is to see how you can apply the lessons learned

in this course to make decisions that may face you at work now or in the future. This also means you must answer this question from the perspective of your job; your present job or a job that you envision you may have later on.

Make sure you answer this question in light of the post-2008 economic and financial realities. Don’t be afraid to “take risk” in answering this question; it may pay off in both grading and your future experiences! :-) I need this in 3 pages please

Explanation / Answer

Background of the 2008 Great Recession - I’m including this to emphasise on the need for inculcating wise financial behaviour (by looking at the severity of the 2008 great recession consequences) so that it can be prevented in future:

The Great Recession began in December 2007 and ended in June 2009, which makes it the longest recession since World War II. Beyond its duration, the Great Recession was notably severe in several respects. Real gross domestic product (GDP) fell 4.3 percent from its peak in 2007Q4 to its trough in 2009Q2, the largest decline in the post war era. The unemployment rate, which was 5 percent in December 2007, rose to 9.5 percent in June 2009, and peaked at 10 percent in October 2009. As a result of rising unemployment and declining labor force participation, the percentage of the population with a job fell sharply in the recession and stayed low through much of the recovery.

         As the financial crisis and recession deepened, measures intended to revive economic growth were implemented on a global basis. And this surely calls for learning new lessons to prevent such downfalls in the future as well as keep ourselves protected (financially / economically) from sudden economic breakdown.

As a business executive I would like to inculcate below mentioned financial behavior within myself:

Being Ethical

Ethical people are those who recognize the difference between right and wrong and consistently strive to set an example of good conduct. In a business setting, being ethical means applying principles of honesty and fairness to relationships with co-workers and customers. In the financial sector the temptation to act unethically can be high because of the large sums of money involved. Ethics goes beyond restraining from people want to be ethical. Standards of ethics and ethical decision making are important for the functioning of the investment industry and the wider financial system. Decisions on ethical issues, like decisions of any kind, are driven by the psychology of the decision maker - situational and social forces can result in otherwise ethical individuals committing unethical acts. A well-intentioned people can have ethical lapses if they find themselves in particular circumstances and do not take account of the errors in judgment that humans are behaviorally inclined to make. In short, “bad acts” are not committed only by “bad people.” Sometimes “good people” act in an unethical manner, out of a desire to conform with others around them or because they are overconfident.

There are many benefits involved with being ethical like it builds loyalty, retains good people, there is positive work environment, avoids legal problems, etc.

Being Rational (Homo Economicus)

Homo Economicus is a term that describes the rational human being -"wealth maximizers" who seek to increase their own well-being. According to conventional economics, emotions and other extraneous factors do not influence people when it comes to making economic choices.

In most cases, however, this assumption doesn't reflect how people behave in the real world. The fact is people frequently behave irrationally. Consider how many people purchase lottery tickets in the hope of hitting the big jackpot. From a purely logical standpoint, it does not make sense to buy a lottery ticket when the odds of winning are overwhelming against the ticket holder (roughly 1 in 146 million, or 0.0000006849%, for the famous Powerball jackpot). Despite this, millions of people spend their hard earned money on buying lottery tickets.

Therefore I would strongly prefer to be a rational thinker while making a decision at job or in personal life. Not thinking rationally leads to poor decision making. We can make better decisions and implement them better so that we can produce more of what we want/expected and produce positive or successful results. Not considering tradeoffs and realities and/or not seeing them or understanding them can lead to failure in job as well as personal life.

Considering your job to be your greatest asset

It's much harder to survive a major downturn without a pay check - The Great Recession wiped out more than 8 million jobs. Even a part-time job at minimum wage can be a lifesaver if it helps one cover his/her basic living expenses without having to withdraw from a shrinking nest egg in a bear market.

One should not retire until they are confident that they could pay their essential expenses for at least two years without having to tap on their stock investments. The surest way to achieve that goal is to boost the Social Security benefit by delaying the application. Social Security is guaranteed monthly income that doesn't fall when stocks do — and it lasts for the lifetime. Other sources of income that can help one survive a bear market without a pay check include money market funds, certificates of deposit, short-term high-quality bonds and fixed-income annuities.

Risk Matters

Clearly, the amount of risk taken in one's investment portfolio will capture a significantly greater degree of attention in the years ahead. The decline of 2008 taught us that once-in-a-lifetime events can occur. We've also learned that diversification means more than just stocks and bonds. The simultaneous decline of stocks, bonds, housing and commodities is a stark reminder that there are no "sure bets," and that a cash cushion could save the day when times get tough. The blind pursuit of profit with no thought to the downside is a strategy that failed spectacularly.

Moving forward, investors should learn to be leery. Protecting what we've got is just as important as trying to get more. Keeping one eye on risk and the other on growth is a lesson worth. We put a lot of trust in experts, including stock analysts, economists, fund managers, CEOs, accounting firms, industry regulators, government and a host of other smart people. They all let us down. A great many of them lied to us, intentionally misleading us in the name of greed and personal profit. Even index fund providers let us down, charging us a fee for the "privilege" of losing 38% of our money.

While the collapse of Long-Term Capital Management in the late 1990s demonstrated that genius does fail, the lesson was seen by all but felt by few. The crash of 2008 was the complete reverse. Few saw it coming, but most felt it arrive. If we've learned anything from the experience, it should be that blind trust is a bad idea and that even experts can't predict the market.

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