When constructing layers does goal based investing consider the correlation between them and if not how is it any different from behavioural portfolio theory or mental accounting?
No, it doesn`t consider the correlation.
Mental accounting – it is TENDENCY (BIAS) people to separate their money into different accounts based on source of the money and the intended use.
Behavioral portfolio theory – explains how investors with mental accounting bias construct their portfolios. The risk of failing to achieve the goal – main concern. Objective - achieve goals with specified required probabilities of success.
Goal based approach – practical implementation of the theory. Differs from Asset Only: different risk-return objectives, using layers and assigning probabilities, doesn`t consider correlations.