title: Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases (Wiley Finance)
author:  Michael M. Pompian 
description: Although fear and greed have always driven the markets as well as good and bad investment decision-making behavioral finance as a discipline has only recently attracted serious attention from both financial professionals and investors. Given the run up in stock prices during the late 1990s, and the subsequent popping of the technology bubble, understanding investor behavior is now more important than ever.<br /> <br />
zlib_text: Reading 7 
  The Behavioral Finance 
  Perspective 
  by Michael M. Pompian, CFA 
  Michael M. Pompian, CFA, is at Sunpointe Investments (USA)  
  © 2011 CFA Institute. All rights reserved. 
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  LEARNING OUTCOMES 
  The candidate should be able to: 
  a. contrast traditional and behavioral finance perspectives on investor decision making; 
  b. contrast expected utility and prospect theories of investment decision making; 
  c. discuss the effect that cognitive limitations and bounded rationality may have on 
  investment decision making; 
  d. compare traditional and behavioral finance perspectives on portfolio construction and 
  the behavior of capital markets. 
  1. INTRODUCTION 
  Behavioral finance attempts to understand and explain observed investor and market 
  behaviors. This differs from traditional (standard) finance, which is based on hypotheses 
  about how investors and markets should behave. In other words, behavioral finance differs 
  from traditional finance in that it focuse