emotional bias/cognitive error/bounded rationality

CFA Level III
#1

I would like to know below statement is correct or not? why?

bounded rationality is rational, emotional bias and cognitive error is irational, so emotional bias and cognitive error has nothing to do with bounded rationality, however they are related to modern behavior finance pricing model.

#2

In bounded rationality investors try to be rational, but due to limitations (eg lack of processing capacity) hinder it.

In my understanfing behavioral bias are unknown to investors, but they subject to. Thus they affect asset pricing. So I would agree.

PS. bounded rationality too affect asset pricing, however, this is not mentioned in the statement.

Please correct me if anything wrong.

#3

I think it is wrong.

Traditional = Rational, Risk Averse, and Integrated goals.

Behavioral = Irrational, Loss Averse, Seperated goals for layers

Behavioral challenge traditional on REM theory and say that humans are bounded rationally.

Correct me if im wrong,

thanks

#4

This is bang on. Thanks

#5

To my understanding bahavioral biases are dirrent from B. rationality as b. bias is not unknown to the decision maker. Also in BR decision maker do not deviate from the objective. Vol 2 p. 24 “A decision maker is saied to exhibit B rationality when he violates some commonly accepted precept of rational behavior but nevertheless act in a manner consistent with the pursuit of an appropriate set of goals or objectives.”