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Behavioral Portfolio Selection

  1. Hersh Shefrin

Published Online: 15 MAY 2010

DOI: 10.1002/9780470061602.eqf14014

Encyclopedia of Quantitative Finance

Encyclopedia of Quantitative Finance

How to Cite

Shefrin, H. 2010. Behavioral Portfolio Selection. Encyclopedia of Quantitative Finance. .

Author Information

  1. Santa Clara University, Santa Clara, CA, USA

Publication History

  1. Published Online: 15 MAY 2010


Portfolios satisfy both financial needs and psychological needs. Behavioral portfolio selection is a framework for understanding how psychology impacts investors' portfolios. Whereas risk and return are the central variables in neoclassical portfolio selection, the behavioral approach emphasizes the roles of emotions such as hope and fear, aspirations, the framing of outcomes as gains or losses relative to reference points, regret aversion, self-control, and judgmental biases.


  • SP/A theory;
  • prospect theory;
  • narrow framing;
  • regret;
  • self-control;
  • heuristics;
  • biases, disposition effect;
  • attention hypothesis;
  • overreaction effect;
  • lottery stocks;
  • diversification