Question

- How is overconfidence measured? How can it be dangerous for financial decision-makers?

- . In a Ponzi scheme, named after Charles Ponzi, investors are paid profits out of money paid by subsequent investors, instead of from revenues generated by a real business operation. Unless an ever-increasing flow of money from investors is available, a Ponzi scheme is doomed to failure. What’s the difference between a Ponzi scheme and an asset price bubble? Are there any similarities?

Answer 1

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Over confidence is measured: Il you are doing some task and you have little Knowledge to you say I have done Phid in that task & But i n real sense, you have very less knowledge This is what over confidence is How can it be dangerous for makers 9 financical docasion Let's assume, you are CFO of Xyz Ltd. And there Located in USA & doing business in us. & you have got good business proposal hom Indian business! partner, a to invest & start a new plant in remote area of Indian sub-continent. But you have no or zero knowledge about starting business in Indias suddenly you came to that EY is providing consulting & they have 50 years of experience in India for a providing consulting business. Then CFO contacted them to they told we will charge xxx amount CFO thought let's save the cast of the company & don't take consulting service, but he has zero business knowledge about India & He became over confident a invested the money & due to some local issue, he won't be able to flande, they made Huge losses, the reason was over confidence by Financial Decision maker"

Difference Between an asset Bubble Ponzi scheme to Ponzi Scheme" onz scheme is a completely fraud In Ponzi sscheme investors are told & Ponzi scheme managets u to in Manager won't invest, they p tors are told to invest thies money e managets will be investing thier money sent assets, but inreality, Ponzi Schen ne invest, they provide higher setorn. early Investors & take the Ponzi scheme Manager take agains money from later investors Ponzi scheme manager disappear with money 1. In short, they provide in Greed" to early investors t lost the money of Later Investors Asset Bubble Asset bubble means, there is a huge increase in asset price over the years. Investors who invest heavily in a asset over the years & see the drastic price rise • Fore.g. us aase Housing price Bubble , Dot-com bubble, Bitcoin Bubble In asset price Bubble, those who invest early, it means they investing at low price , so they will earn money. But those who invest in pet e nding phase of asset price Bubble, they invest in ending phase & don't earn money.