Behavior Portfolio Theory

For Behavior Portfolio Theory, investors do not consider the covariance among assets in the overall portfolio. But, do they consider the covariance of assets within each layer?

Presumably they do.

Are you asking how people commonly invest (layer investment) explained by BPT or the recommendations of BPT in constructing an investment portfolio?

If it is the former, retail investors (and some institutional) invest in layers with different goals and risks characteristics without analyzing return covariances between layers. Worse for single assets. The portfolio won’t be perfect but closer to a traditional efficient portfolio.

BPT suggests to continue investing in layers because is clearer and simpler for investors to follow, but also considering covariances.