MPT vs. Behavioural Finance

As you may recognized i wasn't as active as i supposed to be within the last month. Looking forward I am willing to change this and deliver you some insights of my lastly buyed book. It concerns about behavioural finance in private banking and is written by swiss professor Thorsten Hens and Kremena Bachmann.

There are many concerns about the validity of MPT because of problem with measuring risk with volatility and investors irrational behaviour. I will provide you with some insights inside the whole story and tell you about some experiments i consider interesting. One of these experiments goes as followed:

Experiment #1: car or goat

You have the possibility in a game show to choose between door 1, 2 or door number 3. Whereas you could win a car behind one door, there is a goat behind the two others. So your probability without haven chosen a door is 1/3. Easy maths so fare. After you have chosen door number 1 to get you a new car, the host let door number 3 open behind which there is a goat. Now you are asked to choose to either stay with your choice or to switch from door 1 to door number 2. How do you decide?

As you may know the same questions was a part of the movie "21" in which students counted card to beat las vegas's casinos. I consider it to be more exciting to wait with the conclusion. The only hint I would like to give you is that the chance after the host has opened door number 3 are not equal.

Well, have fun with it :)