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.

Causes of the Boer War

There were significant political conflicts between the two sides. The Boers treated all blacks very badly and did not give basic human rights even to the blacks working for them. They made them pay taxes but could not vote. It was said to be through religious reasons that the Boers treated blacks so badly. This awful treatment infuriated the British, who had abolished slavery in all its colonies as well as at home in 1834. The Dutch wanted to keep its slaves. Europeans working in the Boer territories were also mistreated. These â€Å"Uitlanders† as they were known were key to the Boers' economic success, yet were still denied the vote. The war occurred also because of strategic reasons. The British had already seized Swaziland, Bechuanaland and Basutoland, which more or less surrounded the Boers who feared that if the British took any more territory, they could be under siege, particularly if their route to the sea was blocked. The British wanted to control all of Southern Africa, not just small areas which were isolated – the Boers were their main opponents. There were economic issues involved in the war. The Boers took control of the Transvaal and set up the Orange Free State. They found gold in the Transvaal and this area became very rich indeed. Later diamonds were found in this area as well, and there was argument between the British and Boers over in which nation's territory they lay. Certain individuals had a major role in provoking the war. Cecil Rhodes was probably the most ambitious of Britain's leaders abroad. He was a real imperialist, and strove to expand the British Empire further, especially through his dream of a â€Å"Cape Colony to Cairo† railway. He was strongly anti-Boer, and his actions seemed to shape British policy back at home. Also highly influential was Sir Alfred Milner, who was the British High Commissioner and was also strongly anti-Boer. He was supposed to be a peacemaker, but it were the demands he placed on the Boers which sparked the war, and he ended up looking more like a warmonger. Paul Kruger, President of the Transvaal and leader of the Boers, did not want to give in to the Uitlanders, since he feared he would lose his position if they were given the vote. It was he who had ordered the first attack against he British in 1881. The British were angered by the Boers first assault, but the Zulus' victory over the British led the arrogant Boers to believe that they could defeat them with ease. They were most ambitious, particularly after the absurd â€Å"Jameson Raid† where the British Dr. Jameson led only 500 men into the Transvaal. It was planned that the Uitlanders would join up and form an uprising to overpower and defeat Kruger and the Boers, however the raid was a failure and most of the British were killed or captured. The Boers did not accurately judge the British military.

Annie Dillard “The Chase” Essay

In Annie Dillard’s autobiography â€Å"The Chase†, she emphasizes and uses great detail in her different writing techniques to make the scenes in the story feel more alive or realistic. The attention of detail can be seen with her intense use of transitions and active descriptions in the actual chase scene. Dillard also uses tone and language of the characters to make the story feel more like actual real time events. In the first paragraph of â€Å"The Chase†, the narrator of the story a seven year old girl is informing the audience about the game of football. She says â€Å"It was all or nothing† (Dillard 121). Basically stating that in football you have got to give all of your effort and not hesitate at all if you want to make the tackle and stop the offense. This do or die attitude is reflected later in the story during the chase scene. It is also the climax of the story. Being that a bunch of kids are together unsupervised, there is going to be some trouble. That is exactly what happens next. The children are all gathered during a winter snowy day making snowballs next to a street throwing them at passing cars. â€Å"Its wide black door opened; a man got out of it running. He didn’t even close the car door.† This kind of unexpected thrill we can all relate to. Dillard adds even more by putting in the little details that make the reader feel the anger of this man and the feeling of we’re caught by the children that we have all felt as a kid is described in that same quote. By using these details in the story the reader can put themselves into the shoes of the characters. Dillard uses lots of active descriptions that are very real throughout the chase scene. She uses actual street names like Edgerton Avenue, Lloyd Street, Willard and Lang. This use of actual real names of streets makes the story. The reader can almost get lost in the chase itself with Dillard’s use of rapid transitions like up, around, under, through, down some, across, smashed. After the chase is over and the children are caught the reader feels tired.

Biography of Indias Indira Gandhi

Indira Gandhi, prime minister of India in the early 1980s, feared the growing power of the charismatic Sikh preacher and militant Jarnail Singh Bhindranwale. Throughout the late 1970s and early 1980s, sectarian tension and strife had been growing between Sikhs and Hindus in northern India. Tensions in the region had grown so high that by June of 1984, Indira Gandhi decided to take action. She made a fatal choice - to send in the Indian Army against the Sikh militants in the Golden Temple. Indira Gandhis Early Life Indira Gandhi was born on November 19, 1917, in Allahabad (in modern-day Uttar Pradesh), British India. Her father was Jawaharlal Nehru, who would go on to become the first prime minister of India following its independence from Britain; her mother, Kamala Nehru, was just 18 years old when the baby arrived. The child was named Indira Priyadarshini Nehru. Indira grew up as an only child. A baby brother born in November of 1924 died after just two days. The Nehru family was very active in the anti-imperial politics of the time; Indiras father was a leader of the nationalist movement  and a close associate of Mohandas Gandhi and Muhammad Ali Jinnah. Sojourn in Europe In March 1930, Kamala and Indira were marching in protest outside of the Ewing Christian College. Indiras mother suffered from heat-stroke, so a young student named Feroz Gandhi rushed to her aid. He would become a close friend of Kamalas, escorting and attending her during her treatment for tuberculosis, first in India and later in Switzerland. Indira also spent time in Switzerland, where her mother died of TB in February of 1936. Indira went to Britain in 1937, where she enrolled at Somerville College, Oxford, but never completed her degree. While there, she began to spend more time with Feroz Gandhi, then a London School of Economics student. The two married in 1942, over the objections of Jawaharlal Nehru, who disliked his son-in-law. (Feroz Gandhi was no relation to Mohandas Gandhi.) Nehru eventually had to accept the marriage. Feroz and Indira Gandhi had two sons, Rajiv, born in 1944, and Sanjay, born in 1946. Early Political Career During the early 1950s, Indira served as an unofficial personal assistant to her father, then the prime minister. In 1955, she became a member of the Congress Partys working committee; within four years, she would be president of that body. Feroz Gandhi had a heart attack in 1958, while Indira and Nehru were in Bhutan on an official state visit. Indira returned home to take care of him. Feroz died in Delhi in 1960 after suffering a second heart attack. Indiras father also died in 1964  and was succeeded as prime minister by Lal Bahadur Shastri. Shastri appointed Indira Gandhi his minister of information and broadcasting; in addition, she was a member of the upper house of parliament, the Rajya Sabha. In 1966, Prime Minister Shastri died unexpectedly. Indira Gandhi was named the new Prime Minister as a compromise candidate. Politicians on both sides of a deepening divide within the Congress Party hoped to be able to control her. They had completely underestimated Nehrus daughter. Prime Minister Gandhi By 1966, the Congress Party was in trouble. It was dividing into two separate factions; Indira Gandhi led the left-wing socialist faction. The 1967 election cycle was grim for the party - it lost almost 60 seats in the lower house of parliament, the Lok Sabha. Indira was able to keep the Prime Minister seat through a coalition with the Indian Communist and Socialist parties. In 1969, the Indian National Congress Party split in half for good. As prime minister, Indira made some popular moves. She authorized the development of a nuclear weapons program in response to Chinas successful test at Lop Nur in 1967. (India would test its own bomb in 1974.) In order to counterbalance Pakistans friendship with the United States, and also perhaps due to mutual personal antipathy with US President Richard Nixon, she forged a closer relationship with the Soviet Union. In keeping with her socialist principles, Indira abolished the maharajas of Indias various states, doing away with their privileges as well as their titles. She also nationalized the banks in July of 1969, as well as mines and oil companies. Under her stewardship, traditionally famine-prone India became a Green Revolution success story, actually exporting a surplus of wheat, rice and other crops by the early 1970s. In 1971, in response to a flood of refugees from East Pakistan, Indira began a war against Pakistan. The East Pakistani/Indian forces won the war, resulting in the formation of the nation of Bangladesh from what had been East Pakistan. Re-election, Trial, and the State of Emergency In 1972, Indira Gandhis party swept to victory in national parliamentary elections based on the defeat of Pakistan and the slogan of Garibi Hatao, or Eradicate Poverty. Her opponent, Raj Narain of the Socialist Party, charged her with corruption and electoral malpractice. In June of 1975, the High Court in Allahabad ruled for Narain; Indira should have been stripped of her seat in Parliament and barred from elected office for six years. However, Indira Gandhi refused to step down from the prime ministership, despite wide-spread unrest following the verdict. Instead, she had the president declare a state of emergency in India. During the state of emergency, Indira initiated a series of authoritarian changes. She purged the national and state governments of her political opponents, arresting and jailing political activists. To control population growth, she instituted a policy of forced sterilization, under which impoverished men were subjected to involuntary vasectomies (often under appallingly unsanitary conditions). Indiras younger son Sanjay led a move to clear the slums around Delhi; hundreds of people were killed and thousands left homeless when their homes were destroyed. Downfall and Arrests In a key miscalculation, Indira Gandhi called new elections in March  1977. She may have begun to believe her own propaganda, convincing herself that the people of India loved her and approved of her actions during the years-long state of emergency. Her party was trounced at the polls by the Janata Party, which cast the election as a choice between democracy or dictatorship, and Indira left office. In October of 1977, Indira Gandhi was jailed briefly for official corruption. She would be arrested again in December of 1978 on the same charges. However, the Janata Party was struggling. A cobbled-together coalition of four previous opposition parties, it could not agree on a course for the country  and accomplished very little. Indira Emerges Once More By 1980, the people of India had had enough of the ineffectual Janata Party. They reelected Indira Gandhis Congress Party under the slogan of stability. Indira took power again for her fourth term as prime minister. However, her triumph was dampened by the death of her son Sanjay, the heir apparent, in a plane crash in June of that year. By 1982, rumblings of discontent and even outright secessionism were breaking out all over India. In Andhra Pradesh, on the central east coast, the Telangana region (comprising the inland 40%) wanted to break away from the rest of the state. Trouble also flared in the ever-volatile Jammu and Kashmir region in the north. The most serious threat, though, came from Sikh secessionists in Punjab, led by Jarnail Singh Bhindranwale. Operation Bluestar at the Golden Temple In 1983, the Sikh leader Bhindranwale and his armed followers occupied and fortified the second-most holy building in the sacred Golden Temple complex (also called the Harmandir Sahib or Darbar Sahib) in Amritsar, the Indian Punjab. From their position in the Akhal Takt building, Bhindranwale and his followers called for armed resistance to Hindu domination. They were upset that their homeland, Punjab, had been divided between India and Pakistan in the 1947 Partition of India. To make matters worse, the Indian Punjab had been lopped in half once more in 1966 to form the Haryana state, which was dominated by Hindi-speakers. The Punjabis lost their first capital at Lahore to Pakistan in 1947; the newly-built capital at Chandigarh ended up in Haryana two decades later, and the government in Delhi decreed that Haryana and Punjab would simply have to share the city. To right these wrongs, some of Bhindranwales followers called for an entirely new, separate Sikh nation, to be called Khalistan. During this period, Sikh extremists were waging a campaign of terror against Hindus and moderate Sikhs in Punjab. Bhindranwale and his following of heavily armed militants holed up in the Akhal Takt, the second-most holy building after the Golden Temple itself. The leader himself was not necessarily calling for the creation of Khalistan; rather he demanded the implementation of the Anandpur Resolution, which called for the unification and purification of the Sikh community within Punjab. Indira Gandhi decided to send the Indian Army on a frontal assault of the building to capture or kill Bhindranwale. She ordered the attack at the beginning of June  1984, even though June 3rd was the most important Sikh holiday (honoring the martyrdom of the Golden Temples founder), and the complex was full of innocent pilgrims. Interestingly, due to the heavy Sikh presence in the Indian Army, the commander of the attack force, Major General Kuldip Singh Brar, and many of the troops were also Sikhs. In preparation for the attack, all electricity and lines of communication to Punjab were cut off. On June 3, the army surrounded the temple complex with military vehicles and tanks. In the early morning hours of June 5, they launched the attack. According to official Indian government numbers, 492 civilians were killed, including women and children, along with 83 Indian army personnel. Other estimates from hospital workers and eyewitnesses state that more than 2,000 civilians died in the bloodbath. Among those killed were Jarnail Singh Bhindranwale and the other militants. To the further outrage of Sikhs worldwide, the Akhal Takt was badly damaged by shells and gunfire. Aftermath and Assassination In the aftermath of Operation Bluestar, a number of Sikh soldiers resigned from the Indian Army. In some areas, there were actual battles between those resigning and those still loyal to the army. On October 31, 1984, Indira Gandhi walked out to the garden behind her official residence for an interview with a British journalist. As she passed two of her Sikh bodyguards, they drew their service weapons and opened fire. Beant Singh shot her three times with a pistol, while Satwant Singh fired thirty times with a self-loading rifle. Both men then calmly dropped their weapons and surrendered. Indira Gandhi died that afternoon after undergoing surgery. Beant Singh was shot dead while under arrest; Satwant Singh and alleged conspirator Kehar Singh were later hanged. When news of the Prime Ministers death was broadcast, mobs of Hindus across northern India went on a rampage. In the Anti-Sikh Riots, which lasted for four days, anywhere from 3,000 to 20,000 Sikhs were murdered, many of them burned alive. The violence was particularly bad in Haryana state. Because the Indian government was slow to respond to the pogrom, support for the Sikh separatist Khalistan movement increased markedly in the months following the massacre. Indira Gandhis Legacy Indias Iron Lady left behind a complicated legacy. She was succeeded in the office of Prime Minister by her surviving son, Rajiv Gandhi. This dynastic succession is one of the negative aspects of her legacy - to this day, the Congress Party is so thoroughly identified with the Nehru/Gandhi family that it cannot avoid charges of nepotism. Indira Gandhi also instilled authoritarianism into Indias political processes, warping the democracy to suit her need for power. On the other hand, Indira clearly loved her country  and did leave it in a stronger position relative to neighboring countries. She sought to improve the lives of Indias poorest  and supported industrialization and technological development. On balance, however, Indira Gandhi seems to have done more harm than good during her two stints as the prime minister of India. For more information on women in power, see this list of Female Heads of State in Asia.