model behavior in terms of rational individual decision-makers who make optimal use of all available information. There is ample evidence that the rationality assumption is unrealistic. The 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…
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