Behavioral Finance

Not entirely. It shows markets are not always perfectly efficient and that predictable biases can create temporary mispricings. Whether these mispricings are exploitable after transaction costs remains debated.

A model by Kahneman and Tversky showing that people weigh losses roughly twice as heavily as equivalent gains. This explains why investors hold losing stocks too long (hoping to break even) and sell winners too quickly (locking in gains).

The tendency for investors to sell winning investments too early and hold losing investments too long. It stems from loss aversion: realizing a loss feels painful, so investors delay it, while realizing a gain feels good, so they rush it.