IOP3708 ASSIGNMENT 4 SEMESTER 1 2025 Table of Contents Introduction 2 QUESTION 1 3 1.1. Briefly explain three theoretical foundations that support the concept of market efficiency. (5 marks) 3 1. Investor Rationality as a Foundation of Market Efficiency

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Table of Contents
Introduction ................................................................................................................ 4


QUESTION 1 ............................................................................................................. 4


1.1. Briefly explain three theoretical foundations that support the concept of market

efficiency. (5 marks) ................................................................................................... 4


1. Investor Rationality as a Foundation of Market Efficiency .................................. 5


2. Uncorrelated Investor Errors and Market Price Accuracy ................................... 5


3. No Limits to Arbitrage and the Self-Correcting Market Mechanism .................... 6


4. Supplementary Theories Supporting Market Efficiency ...................................... 7


QUESTION 2 ............................................................................................................. 8


2.1 In the context of the psychology of money, describe how the four continuums or

polarities of the MBTI (Myers-Briggs Type Indicator) are used to understand money

behaviour and decisions. Relate this to the eight traits ascribed to good investors and

the education of investors. (15 marks) ....................................................................... 8


Understanding the MBTI and Its Application to Financial Behavior ........................ 9


Extraversion vs. Introversion (E–I): Social Orientation in Investing ........................ 9


Sensing vs. Intuition (S–N): Information Gathering and Financial Analysis .......... 10


Thinking vs. Feeling (T–F): Decision-Making and Emotional Influence ................ 10


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Judging vs. Perceiving (J–P): Structure, Flexibility, and Risk Response .............. 11


MBTI and the Eight Traits of Good Investors ........................................................ 11


Implications for Investor Education and Behavioral Coaching .............................. 12


QUESTION 3 ........................................................................................................... 13


3.1. Brain imaging research suggests that ambiguity aversion may stem from the

distinct ways in which risk and uncertainty are perceived during decision-making.

Critically explain this statement. (5 marks) ............................................................... 13


Ambiguity Aversion ............................................................................................... 13


Distinction Between Risk and Uncertainty ............................................................ 13


Neurobiological Basis of Ambiguity Aversion ........................................................ 14


Critical Implications for Financial Behavior ........................................................... 14


Conclusion ............................................................................................................... 15


References ............................................................................................................... 16




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