Behavioural issues in portfolio decision analysis

Fasolo, Barbara and Morton, Alec and Winterfeldt, Detlof (2011) Behavioural issues in portfolio decision analysis. In: Portfolio Decision Analysis. Springer-Verlag, 9781441999436, pp. 149-165.

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Abstract

The aim of this chapter is to review some behavioural issues in portfolio choice and resource allocation decisions, with a focus on their relevance to Portfolio Decision Analysis. We survey some of behavioural literature on the most common heuristics and biases that arise in and can interfere with resource allocation processes. The common idea behind this behavioural literature is that of cognitive or motivational failure as an explanation for the violation of normative models. Then, we reflect on the relevance of this literature by drawing from the authors’ personal experiences as decision maker or decision analyst in real world resource allocation settings. We argue that justifiability can also be a reason for the normative violations. We conclude by discussing ways in which an analyst might approach debiasing.