grad-behavioral-finance

Installation
SKILL.md

Behavioral Finance

Overview

Behavioral finance challenges the rational-agent assumption by documenting systematic cognitive biases that affect investor decisions and market prices. Anchored in Kahneman and Tversky's prospect theory (1979), the field explains persistent anomalies that traditional finance cannot.

When to Use

  • Explaining market anomalies (momentum, bubbles, crashes) through investor psychology
  • Diagnosing decision biases in portfolio management
  • Designing de-biasing strategies for investment processes
  • Evaluating why "rational" strategies underperform expectations

When NOT to Use

  • As a catch-all explanation for any price movement — biases must be identified specifically
  • When standard rational models already explain the phenomenon adequately
  • For normative portfolio construction without considering limits to arbitrage
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