Equity and the law of trusts Essay Example | Topics and Well Written Essays - 1750 words

Equity and the law of trusts - Essay Example Family lives and also the rules and regulations related to family evolved in Scotland laws.2. Scotland Act 2006 is basically talking about the rules and regulations which are reflecting the family life and are a part of the lives of the people. There are majorly three areas which the reforms cover which include covering the rules and regulations regarding children safety and the safety of the rights of children and their interest. Promotion of stable families along with supporting a firm family system. The rules and regulations should reflect the family life of Scotland and should depict the real and true family life of Scotland. Cohabitant refers to couple who are living together as husband or wife or even as civil partners. As per the Scotland rule and regulations if someone is living with their parents for many years they still do not have right over their property like married people. Act 2006 abolished the rules made for the couple who lived together and thought of getting marri ed. Scotland Act 2006 safeguards the rights of cohabitants particularly referring to cases where the relationship breaks down or if one partner dies. It clearly distinguishes between the rights of people who are married , are civil partners with those who were living together.3 There is a booklet which is based on the marriage which is produced by the Scottish executive along with civil partnerships based in Scotland which was produced by Scottish Executive which needs to be clearly read and understood by the people who are preparing to start a living in relationship or people who are trying to move in with their partners thus a proper formal commitment is essential to be established.4 1 Hugh James solicitors (2009).   2 LegalBeagles.info (2012) 3 Family Law (Scotland) Act 2006." 4 Scotland Act 2006." Scotland Act 2006. The rules and regulations in the Scotland Act 2006 covers the rules and rights of opposite sex partners living in together and it excludes the couples which are of same sex. The law of Scotland talks about the commodity distribution and sharing as well between the couples , when the couple was living together and when it separated. 5 If the couples are not able to come up with a mutual consent of the commodity distribution which includes the household goods the law will make an assumption that it is for both of them and it should be jointly shared. 6 There should also be an equal distribution which is made of the money from the allowances which are made by the couples of the expenses and property of the house. The house where the couple is living in is excluded from this. Here also financial provisions are kept in mind once the relationship ended which basically means that if one partner left his/her job so that she/he can take care of the house or even the children if any, here the partner can ask the court to keep in account the ability of the partner to earn money which he/she ignored for the benefit of the house and relationship after the relationship ended. 7 If the partners had any children while they were living together , the cost of the child care will be equally sharing the cost just like they were before the relationship ended. If one of the partner dies without a proper will, in that care there is a right which is applied by the court

Chaplins Silent Movies Essay Example | Topics and Well Written Essays - 2500 words

Chaplins Silent Movies - Essay Example The cinema industry has developed from silent movie to the higher level audio projection noticed in the modern movie industry. Characters have manipulated this provision to accord the movie production an identity that is projected to the society. Famous actors and performers have been associated with the existing technological development found within a given movie setting. Charlie Chaplin had been identified with the comedy genre and his performance on the silent movie theme accorded the production an identity. He had managed to revolutionize the technology evident during his time to develop movies that attracted audience based on the performance (Milton 1996, p86). The result meant that the audience was capable of identifying his movies with a similar theme from the actor. Chaplin presented multiple talents in not only producing the comedy theme during the silent movie period, but also served as an outstanding actor. Chaplin managed to revolutionize the silent film era through pres enting a unique style in the completion of his film creation.Chaplin movies had made him popular at the time when sound had been the absent entity within the development of film production. Chaplin had been remarkable and created an identity among the audience to relate to a style that had not been developed by other actors. Without sound, comedy had been the most difficult entity to achieve, but Chaplin managed to create a style that applied visual effects to present humor. The most noticed provision applied in his style was in the image he had created of himself. The stage presentation was unique to be familiar among his fans. He humored audiences with the antics he had created with the package of a bowler hat and the combination of a baggy trouser. Chaplin also developed an outstanding moustache with an expressive cane, mostly applying visual humor to move the fans. The development that Chaplin presented to the film had included positive reforms and application of creativity to r elay a massage. His style had been influenced with the ability to communicate with the audience without speech application. Chaplin had initially been a musician and had developed his acting career based on the desire to revolutionize his lifestyle. Under Mack Sennet, Chaplin developed his acting career to become a successful comedian while making short films. By 1920, he had managed to progress into developing films that held more content and time to deliver prosperity in his career. With his talent, Chaplin had founded the United Artists to produce affordable films completing the details personally with his talent. He had been a producer, writer and an actor who sought inspiration from the former comedian Max Linder who had applied a similar style. He managed to successfully incorporate the style within his movie creation to personalize the theme and accord an identity form that had appealed to his audience. Chaplin had created his films based on presented this and experience acco rded from childhood experiences. Chaplin had grown up in poverty from an irresponsible father and a mentally challenged mother. These conditions had limited his progress with the threat posed on the success towards societal development. He had ventured into the film creation industry with the motive of delivering success in his personal lifestyle. Moreover, Chaplin had been a performer, and

The Urbanization of The Internet Essay Example | Topics and Well Written Essays - 500 words

The Urbanization of The Internet - Essay Example By looking at Myspace and Facebook we can see the same fear, flight, and the slow reintegration that that is characteristic of American cultural attitudes. Myspace, one of the original social networks, was created to be open to everyone, while Facebook was exclusive. Loose security at Myspace made the site a haven for predators, danger, and disreputable behavior. Facebook was established to eliminate the perils that were inherent on Myspace. It was created as a college only site, which had the socio-economic implication that the poor and uneducated need not apply. This is similar to the racial fear of the previous half-century that saw the white population fleeing the decaying inner cities for the exclusivity of suburbia. This same phenomenon was echoed in the creation of Facebook. Myspace continued to be a haven for deviance and what Danah Boyd calls the "subaltern teens", while Facebook had attracted a more urbanite client base with an 'invitation only' strategy. Social networking requires that friends exist on the same system. This is consistent with the changing landscape of America's socio-economic division.

Children's views, needs, wishes and feelings are at the heart of Essay

Children's views, needs, wishes and feelings are at the heart of national legislation and international agreements and convent - Essay Example From such international law, the Convention on the Rights of the Child has been specifically drawn. The Vienna Declaration and Programme of Action also provide various legal guidelines on the protection of children’s rights and welfare. For various states, specific provisions are laid out, including the Equal Protection Clause in the US, the basic rights of children as protected by the 14th Amendment of the US Constitution. More provisions on the protection of these rights are also specifically indicated by various countries. These laws and policies seek to protect children from human rights violations, treating these children as vulnerable members of society. This paper is based on the premise that children’s views, needs, wishes and feelings are at the heart of national legislation and international agreements and conventions. In relation to current policy, this essay shall critically discuss the implications of such premise for early years’ practice among chil dren. First, an initial overview of childhood needs, views, and feelings in relation to national laws and conventions will be presented. Secondly, a discussion on children’s human rights as guaranteed by the UN and other legislative bodies shall also be presented. Thirdly, this essay will also provide the considerations made for children’s feelings and needs in relation to the specific laws and conventions. Fourth, the No Child Left behind Policy of the US will also be discussed in order to detect current trends in children’s rights policies. Fifth, a relationship between the NCLB and the international conventions will be considered. Sixth, the impact of these laws on the improvement of children’s welfare shall be presented. Finally, this essay shall end with a summary and a conclusion of the different points discussed and detailed. Body Overview of childhood needs and feelings Children’s feelings and needs have been brought sharply into internatio nal focus and attention during the First World War when millions of children experienced significant hardships as a result of international human conflicts (Fortin, 2003). In effect, the sufferings of these children served as the foundation for children’s rights. Eglantyne Jebb had a crucial role in the establishment of the 1924 Declaration of the Rights of the Child (Glendon, 2002). These rights were primarily based on her Christian faith (Glendon, 2002). The foundations of children’s rights then were on the protection and nurturing of the child, securing their moral privileges including their need for love and understanding (Fortin, 2003). Various rights are granted to humans, especially as soon as they reach the age of majority. One of the most important rights granted to these humans include the right to vote; however, children or minors below the age of 18 are not granted this right. In general, children do not seem to have control of the things which happen to th em or the matters which concern them (Fortin, 2003). This is very much apparent in daily situations and activities including school, religion, and upbringing. School subjects are compulsory for them to attend and study, mostly based on their location; moreover, for most children until the age of 14, their religion must be that which is inherited from their parents (Fortin, 2003). Parents decide,

Franklin Pierce Essay Example for Free

Franklin Pierce Essay Franklin Pierce (November 23, 1804 – October 8, 1869) was the 14th President of the United States, serving from 1853 to 1857, an American politician and lawyer. To date, he is the only President from New Hampshire. Pierce was a Democrat and a doughface (a Northerner with Southern sympathies) who served in the U. S. House of Representatives and Senate. Later, Pierce took part in the Mexican-American War and became a brigadier general. His private law practice in his home state, New Hampshire, was so successful that he was offered several important positions, which he turned down. Later, he was nominated for president as a dark horse candidate on the 49th ballot at the 1852 Democratic National Convention. In the presidential election, Pierce and his running mate William R. King won by a landslide in the Electoral College, defeating the Whig Party ticket of Winfield Scott and William A. Graham by a 50% to 44% margin in the popular vote and 254 to 42 in the electoral vote. According to historian David Potter, Pierce was sometimes referred to as Baby Pierce, apparently referring to both his youthful appearance and his being the youngest president to take office to that point (although he was, in reality, only a year younger than James K. Polk when he took office). Pierce attended school at Hillsborough Center and moved to the Hancock Academy in Hancock at the age of 11; he was transferred to Francestown Academy in the spring of 1820. In fall 1820, he entered Bowdoin College in Brunswick, Maine, where he participated in literary, political, and debating clubs. There he met writer Nathaniel Hawthorne, with whom he formed a lasting friendship, and Henry Wadsworth Longfellow. He also met Calvin E. Stowe, Seargent S. Prentiss, and his future political rival, John P. Hale, when he joined the Athenian Society, a group of students with progressive political leanings. In his second year of college his grades were the lowest of his class, but he worked to improve them and upon graduation in 1824 ranked third among his classmates. In 1826 he entered a law school in Northampton, Massachusetts, studying under Governor Levi Woodbury, and later Judges Samuel Howe and Edmund Parker, in Amherst, New Hampshire. He was admitted to the bar and began a law practice in Concord, New Hampshire in 1827. Pierce served as President from March 4, 1853, to March 4, 1857. He began his presidency in a state of grief and nervous exhaustion. Two months before, on January 6, 1853, the President-elects family had boarded a train in Boston and shortly thereafter were trapped in their derailed car when it rolled down an embankment near Andover, Massachusetts. Pierce and his wife survived, merely shaken up, but saw their 11-year-old son Benjamin crushed to death. Jane Pierce viewed the train accident as a divine punishment for her husbands pursuit and acceptance of high office. Pierce chose to affirm his oath of office rather than swear it, becoming the first president to do so; he placed his hand on a law book rather than on a Bible while doing so. He was also the first president to recite his inaugural address from memory. In it Pierce hailed an era of peace and prosperity at home and urged a vigorous assertion of US interests in its foreign relations. The policy of my Administration, said the new president, will not be deterred by any timid forebodings of evil from expansion. Indeed, it is not to be disguised that our attitude as a nation and our position on the globe render the acquisition of certain possessions not within our jurisdiction eminently important for our protection. The nation was enjoying a period of economic growth and relative tranquility. The Compromise of 1850 seemed to have calmed the storm about the issue of slavery. When the issue flamed up early in his administration, though, Pierce did little to cool the passions it aroused, and sectional fissures reopened. The greatest challenge to the countrys equilibrium during the Pierce administration, though, was the passage of the Kansas-Nebraska Act in 1854. It repealed the Missouri Compromise and reopened the question of slavery in the West. This measure, sponsored by Senator Stephen A. Douglas, had its origins in the drive to facilitate the completion of a transcontinental railroad with a link from Chicago, Illinois to California through Nebraska.

BP SWOT Essay Example for Free

BP SWOT Essay Strength Strong improvement in safety BP focuses on new research and product innovation, leading in new researcher and also improving in safety and procession in the work places. According to â€Å"Safer drilling† (n.d.), BP use Blowout preventer (BOP) technology to support safety in offshore rigs in Brazil. Using high technology likes digital radiography can evaluate and determine underground structure in the North Sea. BP also improves the new tools called Permasense corrosion probes to supervise wall’s thickness in refining process (â€Å"Robust research†, 2013). This equipment is an effective method to control and protect the probability in wall crake. Weakness Ecological impacts of oil spillage damage reputation BP experienced a reputation risk in terms of both public reaction and biological response. About 5 million BP raw oil spilled in 2010, causing a disaster on ecosystem. Dragovic (2013) stated that oil spill would constraint species of wildlife because residues of harmful substances could not be cleanup completely. It also disrupts the chain of wildlife. BP was deluged with blame and disappointment from the pubic. It would take BP quite some time to rebuild its brand-image. (Walt, 2010) Opportunity Growing demand on renewable energy The world has increasingly growing demand for renewable energy. The global renewable consumption will increase to 6.3% (2030) of energy demand from 1.8% (2010). BP is prepared to place emphasis on development of renewable energy (Morales, 2012). Consumers have a tendency to choose to use renewable energy. According to â€Å"consumer demand is growing† (2011), there are 48% of subjects who are willing to use renewable energy and 49% are prepared to pay additional cost for that. Threat Lack of oil and gas reservoirs Oil and gas businesses are high competition because companies gain high benefits. From long period in operation, the crude oil and natural gas around the world is declining that mean the fossil fuel in the future will run out. According to â€Å"OPEC share of world crude oil reserves 2012† claim that now OPEC has only 1,200 billion barrels in reserves global fossil energy In 2010 individual and organization used approximately 87 million barrels per day. The biggest fuel consumer is Asia and Oceanic region. They used around 27 million barrels per day and gradually every year from 2006-2010. Recently, people utilize oil and gas rather than producing. (â€Å"International Energy Statistics, n.d.) References Consumer demand for renewable energy is growing. (n.d.). Retrieved from http://www.windmade.org/for-companies/global-wind-study/consumer-demand-for-renewable-energy-is-growing.aspx Dragovic, D. (2013, March 19). Environmental impact of the BP oil spill. Retrieved from http://livinggreenmag.com/2013/03/19/energy-ecology/environmental-impact-of-the-bp-oil-spill/ International Energy Statistics. (n.d.). Retrieved from http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5pid=54aid=2 OPEC share of world crude oil reserves 2012. (n.d.). Retrieved from http://www.opec.org/opec_web/en/data_graphs/330.htm Marketline. (2013, August 23). Company profile: BP Plc. Retrieved from Business Source Complete database. Morales, A. (2012, January 18). Renewable-energy growth to outpace oil, gas through 2030, BP Says. Retrieved from http://www.bloomberg.com/news/2012-01-18/renewables-to-grow-more-than-8-a-year-through-2030-bp-says.html Safer drilling (n.d.). Retrieved from http://www.bp.com/en/global /corporate/sustainability/safety/preventing-and-responding-to-accidents-and-oil-spills/safer-drilling.html The Gulf of Mexico oil spill: consequences for the oil and gas industry. (2011, February 15). Retrieved from http://uk.practicallaw.com/3-504-7901?service=crossborder#a684683 Wearden, G. (2010, April 27). BP profits jump after oil price rise. Retrieved from http://www.theguardian.com/business/2010/apr/27/bp-profits-jump-oil-prices-ris Walt, V. (2010, July 19). Can BP ever rebuild its reputation? Retrieved

Prospect theory in decision making

Prospect theory in decision making Prospect theory is an important theory for decision-making between alternatives that involve risk. The theory departs from the traditional expected utility theory because it attempts to explain how people really make decisions between risky alternatives, which attempts to model optimal decisions. This vital difference leads to the prospect theory departing from the traditional framework in important ways. Unlike the traditional approach, it attempts to incorporate psychology into the consideration process to provide a behavioural approach to portfolio selection (Barberis, Nichola, Huang, Santos, 2001). During the course of this report, we will first look at how prospect theory differs from the traditional expected utility theory to gain a better understanding of the concept. Following this will be, a discussion of the key elements of prospect theory the value function including a small reference to endowment effect and the status quo bias, reflection and framing effect, isolation e ffect and probabilistic insurance. Towards the end, we will have a precise look at the applications of prospect theory equity premium puzzle and home bias. The traditional finance theory assumes that investors try to maximize expected utility of wealth when they are making decisions under uncertainty. However, many studies have shown that the underlying assumptions of the traditional theory do not accurately describe how people actually behave when choosing among risky alternatives. This inadequacy leads to the weak correlation between the utility theory model and real decisions. There are four key features [that] distinguish prospect theory from mean-variance theory, which is the traditional approach to modelling decision-making. First, according to the traditional theory people choose among alternatives based on how the outcomes will affect their overall wealth. However, according to prospect theory people evaluate outcomes in terms of gains and losses relative to a reference point. So decisions are based on how the outcome changes their income, in relation to their reference point. (Han Hsu, 2004). Second, the mean variance analysis makes the assumption that people are risk averse in all their choices. In contrast, prospect theory agents are risk-averse in the domain of gains but are risk seeking when all changes in income are framed as losses. The third feature of prospect theory is loss aversion. An individual is loss averse if she or he dislikes symmetric 50-50 bets and their degree of aversion increases with the absolute size of the stakes. In other words, prospect agents dont perceive gains and losses of equal amounts evenly. For example, the loss of a particular amount is more painful then the pleasure received from the gain of an equal amount. This is also known as the endowment affect. People place a higher value on a good that they own than goods that they do not, and are willing to accept a higher risk if it means that they can avoid the loss. Finally, in utility theory risk is treated objectively, by its probabilities. In contrast, the utility under prospect theory is not dependant on the original probability but rather on the transformed probability also known as decision weights. They do not just measure the perceived likelihood of an event. Instead, they measure how events will impact the desirability of prospects. (Han Hsu, 2004) This feature of the prospect theory helps explain a number of violations of expected utility theory, including the famous Allais paradox. People in prospect theory tend to overweight small probabilities. This overweighting explains why people buy lottery tickets offering a small chance of large gain, and insurance protecting against a small chance of a large loss (Kahneman Tversky, 1979). The four elements explained above and how risk is evaluated is usually explained by the value function. The concept of the value function is based on gains and losses from a reference point, as explained in the first element of prospect theory above. Value function stresses the importance of the reference point (starting point) although changes and movement are observed more compared to the resting point, due to the concept of gains and loss. The following is the prospect theory value function: à Ã¢â€š ¬= non-linear weighting function V(x-r) = the value function R= the reference point PT = à ¢Ã‹â€ Ã¢â‚¬Ëœ à Ã¢â€š ¬ (pi) v(xi r) This function creates an S-shaped curve (Figure 1.1) Figure 1.1 The curve clearly highlights the reference point, from where onwards gains and losses can be observed. It displays that as your gain increases the desire for it decreases demonstrating that people are risk averse when it comes to gains. On the contrary, as the loss increases the fear for more loss increases hence showing that people are risk seeking regarding losses. These two factors are highlighted in the graph by the steepness of the relevant sides. As gains increase the steepness decreases (indirectly proportional) and as losses increase the steepness increases (directly proportional) (Maher, 2010). An example for this irrational behaviour is how a random sample would prefer to spend their $400. Gain Option A, where you will have a 100% chance of gaining $200 Option B, where you will have 50% chance of gaining $400 and a 50% chance of gaining $0 Loss Option A, where you will have 100% chance of losing $500 Option B, where you will have 50% chance of losing $1000 and 50% of losing $0 In this scenario the vast majority of people would choose option A for gain and option B for loss confirming that people weight their losses more compared to their gains. As they would settle for a rational gain (even if it is small) but when it comes to losses they would prefer risk seeking to limit their loss. The determination of utility relating to the gain or loss mirrors the concept of psychophysical principle concerning the evaluation of outcomes. This reflects loss aversion which then implicates two specific aspects. Firstly, the endowment effect i.e. people would be willing to demand a higher value on product that they themselves own rather than a similar product that they do not. The second implication is status quo bias, in this case people like things to stay relatively in the same position they are in so they remain at the status quo they are in. In this scenario any sort of change either good or bad is taken to be a disadvantage. Another key element of prospect theory is the reflection effect, which states that while investors are risk averse over prospects involving gains, they are risk seeking over prospects involving losses. This effect explains the observed preference for definite small gains over uncertain large gains and in opposition preference for uncertain large losses over small certain losses. A remarkable interpretation of the reflection effect is that, a replacement of all positive payoffs by their negatives (reflection around zero) reverses the choice patterns. For example, a choice between a 90% choice of getting 2000 and a 45% chance of getting 4000 would be replaced by a choice between a 90% chance of losing 2000 and a 45% chance of losing 4000. This effect implies a risk-averse preference for high probability of the relatively safe 3000 gain, but a reversed preference for the risky option in the loss domain. Reflected choice patterns reported by Kahneman and Tversky (1979) were fairly high, i.e. 86% of subjects chose the safe lottery (90% chance of 3000) in the gain domain but only 8% chose the safe lottery when all payoffs were transformed into losses. (Laury Holt, 2000).An important implication of this is the S shape of the value function in prospect theory that is concave for gains and convex for losses. It was also identified, that if the same decision problem was worded differently, the preferences of decision makers differed as well. This was referred to as the framing effect. Prospect theory implies a unique relationship of risk seeking to positive and negative framing- negatively framed problem encourage risk seeking. For example: When a group of investors were faced with the following two propositions: A gamble that offers a 10% chance of winning $95 and a 90% chance of losing $5 and another gamble B offering a 10% chance of winning $100 and a 90% chance of winning nothing. It was found that although the outcomes on both the gambles were the same, 74% of investors chose option B as paying $5(negative as compared to a loss) for the gamble than simply losing made the gamble more acceptable. Von Restorff created the concept of the isolation effect, a way to make something that conforms within a similar a group stand out like a sore thumb. An isolated item, in a list of otherwise similar items, is better remembered than an item in the same relative position in a list where all items are similar. This is a way of distracting attention from one event when the alternative holds exactly the same probability and can be of some help in explaining the prospect theory in decision making in relation to investments. Kahneman and Tversky (1979) used the example of a two-stage test to better explain the use of the isolation effect practically in a behavioral finance situation. Isolation effect is important to show the irrationality of investors in situations that would normally produce a rational effect. This typifies the psychology of an investor having their attention diverted away from using a mean variance analysis of a situation. The first step of the test is a .25 chance of progression to the second stage and a .75 chance of gaining nothing. The participant is asked to decide before the first stage whether, if successful, they would take 3000 or a 0.8 chance of taking 4000. It must be noted that in this game, the participant is choosing between 0.2 chance of 4000 or a 0.25 chance of 3000, the expected value of the former being greater (800 rather than 750). Of the 141 participants that Kahneman and Tversky (1979) tested, 78% chose the first option of the guaranteed 3000. The reasoning behind this is the greater appeal of the sequential certainty of the choice; most participants ignored the first stage of the experiment and just looked at the second test as a basis for their decision rather than weighing up the potential outcomes. The concept is a strong indicator to suggest against all investors being mean variance optimising, there is clear evidence that given the right circumstances people will ignore the obvious rational choice and accept a decision based on the higher valuation of certain prospects. This evidence of irrational preference conforms to the reflection theory where the certainty of a small gain is valued higher than a chance of a large gain. Using this psychological weakness in peoples logic the Von Restorff effect distracted attention from the overall probability and coerced the decision maker into accept a decision based on something that stood out. The rising popularity of insurance policies has been used by supporters of the utility function as strong evidence of the concavity of the utility curve for money. However Kahneman and Tversky (1979) demonstrated that not all insurance policies support this idea, basing their argument around the example of probabilistic insurance. Probabilistic insurance has also been used to highlight that decision weights tend to overweight small probabilities and large probabilities, but underweight moderate probabilities (Wakker, Thaler and Tversky, 1997). Standard insurance provides the purchasers with a zero percent chance of any loss after a given incident, however a probabilistic insurance policy leaves the purchasers open to a small possibility that they will not be fully reimbursed. Following is an example of standard versus probabilistic insurance. Suppose you want to insure iphone4 for the coming year, you can either insure your phone with Natwest bank for  £10 a month or with ABC insurance who offer to insure the phone ever other day throughout the year for  £4.50 per month. Most people would view the offer by ABC as unattractive and prefer to go with the deal offered by the bank of  £10 per month. In this situation the purchaser is underweighting the fifty percent chance of damage to the phone occurring on a day that he or she is covered by the ABC insurance policy. This example demonstrates that reducing the probability of a loss from p to p over 2, is less valuable than reducing the probability of a loss from p over 2 to zero (Tomas and Viilar, 2002). In contrast to the iphone4 insurance example given above, expected utility theory implies that probabilistic insurance is superior to regular insurance. This aversion towards probabilistic insurance is noteworthy because the most avid purchaser of insurance is still subjected to some level of risk. For example, most household contents insurance policies are void if the purchaser forgets to lock their front door. This type of insurance represents many types of protective action, where the user pays a certain cost to reduce the probability of an undesirable event. For example, the purchase of a steering wheels lock or a carbon monoxide detector (Kahneman Tversky, 1979). Applications of Prospect theory The underlying principles behind Prospect theory have been used on a number of occasions to explain a range of financial anomalies. The real world aspect of the model means it offers genuine explanations for some of the most prominent puzzles such as the Equity Premium Puzzle and Home Bias. Equity Premium Puzzle The equity premium puzzle refers to the empirical fact that stocks have outperformed bonds over the last century by a surprisingly large margin. Since 1926, the annual return on stocks has been around 7% while the return on bonds has been around 1% so, $1 invested in the SP 500 on January 1, 1926 was worth $1100 by the end of 1995, while $1 invested in T-bills was worth $12.87. In 1985, Mehra and Prescott noted that under the assumptions of Expected Utility Theory, these abnormally high and low returns are difficult to explain. In 1995, Banartzi and Thaler offered an explanation to the puzzle based on key features of Prospect Theory. They claimed that the puzzle is caused mainly by two factors derived from the Prospect theory; loss aversion (investors being more sensitive to losses than gain) and a short evaluation period (investors checking their portfolio too often). This combination they termed Myopic Loss Aversion. They argue that the attractiveness, and therefore value of a stoc k depends on the time horizon of the investor and frequency of evaluation. The more frequently somebody evaluates their portfolio, the more likely they see their losses and suffer from loss aversion. Putting this application into more contexts, a risky asset paying 7% per year with a standard deviation on 20%, like the average stock, has a probability of loss or gain of around 50%. For a loss averse investor who evaluates frequently, the stock market appears very risky. Considering this, an investor who is prepared to wait a long time between evaluating will find stocks much more appealing as there is an increased chance of them closing their position with a positive return. In turn, long-term investors will be willing to pay more for an identical stock than a short term, frequently evaluating investor. Prospect theory has other various applications associated with it apart from the above mentioned equity premium puzzle. The Home bias phenomenon is another such example. This phenomenon contradicts the mean variance framework, which elucidates the benefits of international diversification helping in the minimization of risk of a given securitys expected return. Home bias states that investors hold more domestic stocks and few foreign stocks than the optimal amounts actually predicted by the mean variance optimization (French and Poterba, 1991). Prospect theory explains this tendency of investors to choose domestic stocks. It says that one of the reasons for this could be a greater familiarity of investors with domestic assets and lower downside risk. This compels investors who may think globally to act locally (Campbell and Kraussl, 2006). Consider a foreign stock and a domestic stock with identical distribution payoffs. Since the foreign stock seem less familiar than the domestic on e, investors may perceive it as having higher variance of payoff leading to low allocation to the foreign stock. However a direct implication of this is derived from the portfolio choice theory that home bias would decline as investors became more familiar with foreign stocks ( (Han Hsu, 2004). Thus, while the prospect theory can explain this behaviour of investors to concentrate risks on single assets rather than to hold a well diversified portfolio, it fails to explain why the single asset chosen by investors are domestic ones. In addition, the argument posed by Stracca (2002) says that if prospect theory is an accurate description of human attitude towards risk, the benefits of international diversification would be reduced to a significant extent. Conclusion We have looked over the principal elements behind the prospect theory proposed by Kahneman and Tversky in 1979. Prospect Theory is an alternative descriptive model of decision making under uncertainty, which incorporates real life choices and psychological analysis. Firstly, within prospect theory investors evaluate their outcomes in accordance with a reference point and make decisions based on how the outcome changes their wealth in relation to this unique reference. Within the expected utility theory, this relative level of wealth is not accounted for. Another key assumption behind prospect theory is the risk averse and seeking behaviour of investors under different circumstances. Investors are risk seeking in terms of losses and risk averse when it comes to profits. The assumptions of an endowment effect and decision weights are also included within the theory, where people place a higher value on a good that they already own and, in contrast to expected utility theory, risk is in corporated not by the original probability but by transformed decision weights. The S-shaped value function curve for prospect theory show this risk seeking and averse behaviour in investors, a reflection effect. The idea of framing is also a key element of prospect theory, where if the same decision problem is described in different words, it can lead to different preferences. Within the theory also is an isolation effect, where devices are used to draw additional attention to something that would otherwise conform, and probabilistic insurance, where decision weights tend to overweight small and large probabilities, but underweight moderate probabilities. The real world assumptions behind prospect theory have been used to explain a number of financial anomalies. We finally looked into prospect theorys applications to the equity premium puzzle and home bias which offer explanations to these anomalies.