path-breaking work
of Herbert Simon, Tversky and Kahneman, Lola Lopes, and
others on bounded rationality, judgmental heuristics, biases,
mental frames, prospect theory, and SP/A theory has provided
new foundations for financial economics. Behavioral finance
studies the nature and quality of financial judgments and
choices made by individual economic agents, and examines
what the consequences are for financial markets and
institutions. Investment portfolios are frequently distorted,
with consequent excess volatility…
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