Problems with behavioral finance include:
I. The behavioralists tell us nothing about how to exploit any irrationality.
II. The implications of behavioral patterns are inconsistent from case to case, sometimes suggesting overreaction, sometimes underreaction.
III. As with technical trading rules, behavioralists can always find some pattern in past data that supports a behavioralist trait.
A) I only
B) II only
C) I and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

Behavioral finance critics argue that it does not provide clear strategies to exploit irrational behaviors (I), its implications can be inconsistent, suggesting both overreaction and underreaction in different scenarios (II), and like technical analysis, it can retrospectively find patterns that fit a theory, which may not be predictive or useful for future decision-making (III).

Problems with Behavioral Finance Include