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Apa style- 3 pages Rational decision-making in investment decisions- read article that is related to rational decision making in investments. Then, summarize and critique the article by applying concepts attached in “read 1”. be sure to include: Explain how the rational decision-making process can be applied to investment strategies.Identify investment strategies for long-term optimal growth. Explain how fairness and ethics can be applied to investment decisions.Decision Analysis in Investments Decision analysis is a major tenet in the rational decision-making
process. This means using logic and data, evaluating alternatives, assigning probabilities, and calculating
expected values in order to make a choice. Decision analysis has two basic components: dividing and
conquering. In decision analysis, complex problems must be broken down into simpler problems, and
then a plan can be put together to take care of all of the smaller problems in a logical way that will fix
the overarching problem. We will use this logic when we discuss decisions about investments. The term
behavioral finance is used to convey how we apply what we know about common judgment errors in
investments. It focuses on how biases affect individuals as well as investment markets. We have
discussed motivation, optimism, and confirmation biases, and how these same biases come in to play
when people with money in the market think they have a bright future in their investment choices. We
also have discussed that even bright people make poor decisions that cost time and money. The same is
true for investment decisions. There is overwhelming evidence that people pay excessively high fees for
actively managed hedge funds and mutual funds for brokers to select stocks and for electronic trading
companies to trade money (Bazerman & Moore, 2013). Many of these investment companies have
come up with ingenious ways to charge fees and confuse investors about performance Factors to
Consider in Investment Decisions Overconfidence is another factor in poor investment choices. People
believe, based on their limited knowledge, that their predictions about the market and their
investments are going to be good ones. This belief that they know where the market is headed can lead
to bad investment decisions. Investing in an index fund is a wiser strategy than frequent stock trading.
Another low-cost alternative is to have a diversified portfolio of stocks and do nothing for many years
and let the market do its job and grow your wealth (Bazerman & Moore, 2013). A simple explanation as
to why so many investors engage in active trading that is hazardous to their wealth is overconfidence.
Optimism is another factor in poor investment decisions and is closely related to overconfidence. Once
investors have made a decision, they tend to be overly optimistic about its future profitability. They
maintain their optimism over time by recalling good performance of the past. They tend to stay
optimistic, even when results are readily available through investment performance records (Bazerman
& Moore, 2013). This optimism helps people justify their past behaviors and allows them to maintain an
illusion of superiority of their investment strategy. Optimism encourages investors to continue to
actively trade instead of choosing wiser, timesaving strategies such as investing in index funds. People
tend to deny that random events are random. This is another factor in bad investment decisions. Many
investors deny that there is a great deal of randomness in the investment arena (Bazerman & Moore,
2013). We should be a little wary of anyone that says he or she can predict an investment’s future on
the past performance of that investment. Generally, funds do not stay hot for long periods. The role of
chance plays a part on any future outcomes. Since the past is not an accurate predictor of the future, we
should be more comfortable in admitting we cannot predict the future, so a safe bet is to stick with
index funds for future stable growth. People spend too much time trading their investments and not
enough time thinking about their asset allocations and developing a long-term plan. For younger people,
more of their asset allocation should be in stocks, and then it should shift slowly over time as they get
close to retirement to less risky options. A study of investment history will show that money invested in
stocks for a retirement fund for decades will offer the best returns. People tend to procrastinate about
making investments. Companies that offer automatic enrollment in 401(k)s are a step ahead and
provide great opportunities for people to enroll and start contributing. If a company will match what the
employee puts in the 401(k), then take full advantage and contribute the maximum that they will match.
It is like getting free money and is a tremendous advantage to help build wealth for retirement.
Investing online rather than using a broker is a good idea for those who follow a more long-term
strategy of buying and holding. This strategy keeps your costs low and your potential growth high.
Daytrading is a term that refers to those investors who initiate and close out high-value positions by the
end of the trading day. It generally refers to short-term trades. Daytraders try to capitalize on
fluctuations in the market of highly volatile stocks (Bazerman & Moore, 2013). Many daytraders pay fees
to buy or sell stocks to someone who has better information and more experience. Most daytraders do
not fare well because, as we have learned in previous units, people are generally not too good at
considering the other side of the transaction. If you have not done so already, you should develop your
retirement plan now. Put your plan on paper or your computer, and refer to it at least annually. How
much will you save daily, weekly, monthly? Invest regularly and automatically. Do you have a 401(k)
retirement plan (or equivalent)? Are you maximizing your contribution? Are you staying on track, or are
you spending too much and saving too little (like most Americans). You cannot achieve a goal you have
not set. Recall our discussions about want versus should, and apply what you have learned when
developing your retirement plan. Most employers provide incentives to save through 401(k) plans. The
government provides incentives to save through tax policies. It is up to you to take advantage of these
opportunities to build your long-term wealth.
Fairness and Ethics in Investment Decisions We have already spent a lot of time in Unit V discussing
fairness and ethics in decision-making. How does this same topic apply to investment decisions? First,
let’s address fairness, and then we will focus on ethics. For investments, we look for the cost to make
the investment to determine fairness. We have discussed that many fund managers make a lot of
money by charging high fees and making trades regularly. To get fair rates, an individual needs to
request accurate information on how all charges and the fund manager calculates fees. Once you have
an honest breakdown of those fees, you can compare it to industry averages or the per-trade fee that
some brokerage firms charge. You are the one who has to decide if what the fund manager charges is a
fair fee. It is best to shop around among the top firms that have a successful record to determine which
one has a good long-term investment strategy and has acceptable and fair costs to manage your
portfolio. Generally, when you work for a company that offers a 401(k) retirement savings plan, the
company has already researched and determined several choices of investment fund strategies from
which to choose. If they did proper due diligence in their research, they have determined the fairness of
the rates for each of the fund choices before selecting the ones that offer good returns at a fair price. If
you leave a company after being vested and you have a 401(k) plan, you can easily transfer those funds
to a different 401(k) plan with another company or move it to a 401(k) plan that you manage. Again, at
this point, you want to make sure that the new choices are fair in cost and offer the type of return based
on your own personal long-term strategy for your retirement funds. Remember, it is best to pick a fund
and leave the investment alone for the long-term benefit of stock growth over time and not make trades
too often. What about ethics in investment? Everyone has heard of the Bernie Madoff Ponzi scheme
that defrauded many people out of millions of dollars. He was an American stockbroker and financier
who developed a very systematic scheme to acquire money from individuals with large sums of money
and supposedly invest it in the stock market using his own private strategy to offer 10% to 12% steady
returns on their investment. It seemed too good to be true, but everyone who knew the man highly
recommended his service and trusted him to make great returns on their investment. If an investor had
$1 million invested with Madoff at 10% return a month, he could make $10,000. If an investor wanted
his return of $10,000, Madoff would send it. The only problem is that the original $1 million never went
into the stock market. The money went into Madoff’s bank account. As long as Madoff deposited large
amounts of money in the account and paid out small amounts, everything was great for Madoff, and no
one was complaining. In fact, everyone was very happy until the 2008 stock market crash. That is when
investors discovered Madoff could not pay all of the money they were trying to withdraw because of the
crash, and the scheme soon fell apart. Many people were substantially hurt financially, and at least one
person committed suicide because of the total loss of income. Madoff’s scheme lasted at least 15 years
until finally his family turned him in to the authorities (Company Man, 2018). For more information
about this unethical scheme, just research Bernie Madoff, and many stories, articles, and information
can be found. The point of this story is that not everyone claiming to be an expert in investments is
honest and ethical. It is best to do your research before investing your funds with an investment
manager. Check as many sources as you can to be relatively confident that you have found an ethical
individual or company. Many were fooled by Bernie Madoff, and even the U.S. Securities and Exchange
Commission (SEC) was blinded for many years by his scheme. Recall the following well-known saying: “If
it sounds too good to be true, it probably is.” This saying is a good rule of thumb that can be used as an
additional check.
Bazerman, M. H., & Moore, D. A. (2013). Judgment in managerial decision making (8th ed.). Hoboken,
NJ: Wiley. Company Man. (2018, March 14). The Bernie Madoff scandal – a simple overview [Video file].
Retrieved from Elnur. (n.d.). The business in Ponzi
scheme concept. Information, employer [Image]. Retrieved from Embe2006.
(2014). Stock market ticker [Image]. Retrieved from
EQUIPTMOD as a basis for rational investment decisions
in tobacco control
EQUIPTMOD is an economic modelling tool that can be
used by national and regional governments in Europe to
assess the return on investment (ROI) of different tobacco
control scenarios using the best available evidence, and so
provides a rational basis for decision-making in this crucial
area of population health.
With regard to tobacco consumption, evidence could not
be clearer in two areas: (a) that smoking is the cause of a
wide range of conditions including neoplasms, cardiovascular and respiratory diseases; and (b) that smoking kills
[1,2]. Recent estimates are available to show how this burden actually translates to colossal economic (opportunity)
costs globally: US$422 billion in 2012 just in health-care
costs (i.e. 5.7% of global health expenditure) and US
$1436 billion (i.e. 1.8% of the world’s annual gross domestic product) when productivity losses were added [3].
Europe is particularly affected, as the tobacco epidemic in
the continent is most advanced—some 28% of the
European Union (EU) population still smokes [4]. The
health and economic burden of tobacco use therefore calls
for the ‘urgent need for countries to implement stronger
tobacco control measures to address these costs’ [3]. This
suggestion immediately begs an important policy question:
how can countries do that? In particular, policymakers
throughout Europe are in need of bespoke information on
the economic and wider returns of investing in evidencebased tobacco control so that they can make stronger business cases for better tobacco control.
A broad spectrum of policy measures exist in the EU
member states: from regulation of tobacco products to advertising restrictions, from creation of smoke-free environments, tax structures and activities against illicit trade to
anti-smoking campaigns and stop smoking services [4].
The implementation of these measures is often countered
by massive lobbying of the tobacco industry [5]. The
Framework Convention on Tobacco Control (FCTC), arguably the most important international step to combat the
scourge of tobacco, has established a landmark reference,
but only parts of this comprehensive framework have indeed been accomplished [6]. For example, only approximately a third of European countries that managed to
increase tobacco taxes also have established laws on
smoke-free public places, and even fewer offer cessation
programmes [2]. As a result, more investment in tobacco
© 2018 Society for the Study of Addiction
control is needed. Equally, countries need to look for alternative strategies to improve the value for money of current
provision of services as well as consider where they could
disinvest from less effective services to allow them to
reinvest that money to more effective tobacco control
Investment decisions involve much more than how
much to spend on tobacco control; it is crucial to have a rational basis for adoption of different strategies or scenarios.
EQUIPTMOD is designed specifically for this kind of modelling. For example, the budget holders (e.g. local authority
service commissioners in England, social health insurance
companies in Germany or the national health services in
Spain) may want to continue providing most services at
their current levels but at the same time may want to scale
up certain services and stop providing more costly and/or
less effective services. This creates opportunities for ‘prospective investment scenarios’, the utility of which could
be assessed against the baseline (i.e. current practice). This
assessment is vital, as it would allow policymakers to be
explicit about the returns that their bespoke tobacco control agendas could generate.
In 2012, the National Institute of Health and Care
Excellence (NICE) published the first Tobacco Control
Return on Investment (ROI) tool [7] as a series of initiatives
to support local authorities (LAs). The policy context was
that the newly enacted Health and Social Care Act 2012
put LAs in the forefront of public health, including tobacco
control. This tool was well received by relevant stakeholder
communities and was instrumental in informing the development by NICE of similar ROI tools in other areas of public
health. The tool was an economic model that synthesized
the existing best evidence around smoking cessation services and allowed LAs to estimate the ROI from what they
were currently doing (i.e. ROI of the current package of interventions). In addition, the tool encouraged LAs to think
about how they could do things differently (i.e. consider alternative package of interventions). The ‘mix-and-match’
of interventions to create an alternative investment package allowed by the tool was attractive, and thus led to
several business cases, informed spending reviews and supported the development of local/subnational tobacco control strategies [8].
The NICE Tobacco ROI tool was developed by a research
consortium led by the Health Economics Research Group
(HERG) at Brunel University London. Building upon the
success of the NICE ROI tool in England, the consortium
applied to and received—after a competitive bidding
Addiction, 113 (Suppl. 1), 3–6
process—funding from the European Commission to transfer the ROI tool to other European member states. This
massive undertaking, essentially a comparative effectiveness research (CER) entitled ‘European-study on quantifying utility of investment in protection from tobacco
(EQUIPT)’, was guided by a complex protocol and was designed to test the transferability of the NICE Tobacco ROI
tool to other EU Member States by adapting it to meet the
needs of European decision-makers, following the transferability criteria described in Pokhrel et al. [9]. Stakeholders’
needs and intention to use ROI tools in Germany,
Hungary, Spain, the Netherlands and the United
Kingdom, collected via interviews and surveys, were
analysed [10]. This analysis was complemented by secondary analysis of the contextual and other factors. Informed
by this contextual analysis, country-specific ROI tools have
been developed using a mix of economic modelling and Visual Basic programming. The ultimate aim of the EQUIPT
study is to make this tool available to European stakeholders to support decision-making in tobacco control.
The EQUIPT ROI Tool, available freely from http://equipt.
eu, can be used to compare various policy scenarios, including new or continued investment strategies or stopping
services that are less effective.
Based on the tool, the researchers conducted extensive
analyses of the cost-effectiveness of alternative strategies
for tobacco control throughout the countries included in
this project. This Supplement to Addiction now presents
those analyses, as well as the description of the methods
underpinning the EQUIPTMOD, and has a collection of
nine papers and an editorial comment. The papers included in this Supplement represent the highest level of
scholarly analyses addressing a key question: what is the
ROI of alternative tobacco control strategies in a country
in question? These analyses, based on the EQUIPTMOD,
are brought together in the pages of one scientific journal
via this collection of papers. The collection is divided into
two themes. The first theme covers the methodological issues and provides an overview of how the ROI tool was developed. The second theme covers country-specific
applications of the tool, leading to rigorous policy analyses
in each of the five EQUIPT countries.
Theme 1: methods and challenges around the
development of EQUIPTMOD
Developing a ROI tool to support decision-making is challenging for a number of reasons. For example, the tool must
be underpinned by robust economic model that is not only
capable of capturing life-time outcomes and costs as current smokers choose to make quit attempts, but also reflects the current decision context in which the tool is
expected to serve. The decision context (in this case, the
public sector) itself poses a number of further challenges:
© 2018 Society for the Study of Addiction
public finance operates in a ‘myopic’ fashion, thus costs
and benefits in the short to medium terms are key ingredients to decision-making and so are costs and benefits falling outside health care (e.g. productivity). Coyle and
colleagues [11] consider these specific challenges and describe the methods of the economic model (EQUIPTMOD)
underpinning the EQUIPT ROI tool. Using examples from
England, they demonstrate how the tool can provide consistent estimates of the health and wider returns that
investing in bespoke tobacco control interventions could
generate for countries.
An economic model is as good as the assumptions underlying it. Therefore, EQUIPTMOD required estimates of
intervention effects, reach and costs. West and colleagues
[12] reviewed the recent literature on the effect and reach
of various population level interventions intended to increase quit attempts as well as individual-level interventions intended to increase the success rates (abstinence
for at least 12 months). To derive effect sizes of the interventions included in the EQUIPTMOD, they used systematic reviews of effi…
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