Behavioral Portfolio Selection

Abstract

Portfolios satisfy both financial needs and psychological needs. Behavioral portfolio selection is a framework for understanding how psychology impacts investors' portfolios. Whereas risk and return are the central variables in neoclassical portfolio selection, the behavioral approach emphasizes the roles of emotions such as hope and fear, aspirations, the framing of outcomes as gains or losses relative to reference points, regret aversion, self‐control, and judgmental biases.