utility. The fundamental issues of traditional finance are classical decision theory, rationality, risk aversion, model … portfolio theory (MPT), the capital asset pricing model (CAPM), and the efficient market hypothesis (EMH). However, evidence …. Among the foundation topics in behavioral finance are behavioral decision theory, bounded rationality, prospect theory …

Although the efficient market hypothesis (EMH) is the leading theory describing the behavior of financial markets …

build on each other: prospect theory, safety-first portfolio theory, security-potential/aspiration (SP/A) theory, and … behavioral portfolio theory. SP/A theory evolves from safety-first portfolio theory and the introduction of aspiration level. The … behavioral portfolio theory integrates the idea of mental accounts from prospect theory with the portfolio optimization framework …

diversification, and trading behavior. Standard finance theory predicts the optimal investment behavior of rational agents with … from theory predictions. The chapter also provides a discussion of empirical regularities that point to these deviations …