This topic has been prompted by the following question:
Measuring Behavioral Finance Effects in Fund/Portfolio Manager Analysis
After reading it and the comments below I started thinking whether behavioral finance could be incorporated into pricing paradigms used by quants.
- Couldn't option pricing to at least some extent benefit from it? E.g. with american options pricing - when pricing one mostly uses the continuation value to analyse whether the holder would exercise or not.
- Does literature on the interfacing of behavioural finance and pricing exit?
- How relevant is it in portfolio optimization ?
- What about an application to credit risk modeling ? Or Risk-Management in general. In Basel III or Solvency II where the companies assets are projected into the future. This projections also include assumptions on how the management will act in certain situations.