Behavioral finance in financial market theory, utility theory, portfolio theory and the necessary statistics: A review

We present an overview of behavioral finance's consistent role in portfolio theory and market theory through utility theory. Since Bernoulli, the subjective nature of utility has been increasingly generalized for questionable purposes. Behavioral finance is reverting back to the original intents of utility theory. We also examine the statistical methods used to determine their suitability for the task at hand. Given the heterogeneous population at the market and individual security level, wesuggest that nonparametric nonlinear statistics are best suited for descriptive and inferential analysis of all possible investor preferences. (C) 2014 Elsevier B. V. All rights reserved.