The Behavioral Finance Perspective: How to answer these LOS in the morning?

Hi there,

Although I believe that I have a good grasp on the major concepts in reading 6 (Behaviroal Finance Perspective), it is not clear how best to address the LOS if asked in the morning. For example:

Los a. Contrast traditional and behavioral finance perspectives on investor decision making;

The CFA book does not separate this reading by LOS very well. It is all lumped together and it is up to us to come up with a concise way to answer the LOS.

What would you include in your answer if asked: Describe how individual investors make decisions under TF and BF.

Is is correct enough to say that under:


  • Assumes that investors are Risk averse & Self interest Utility maximizers.

  • Investors consider all available information and believe that markets are efficient.

  • Furthermore, they revise their expecations accoriding to Bayes formula and use Utility Theory and its basic axions to make decisions and maximize their utility.