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According to the theory of efficient markets, where independent news flows freely and markets are fairly valued, it is impossible to “beat the market” through expert stock selection. Left to their own devices, markets would probably be nothing but rational, with trading wholly justified by universally available information.

However, there is a gap between what should be and what is, concerning decisions made in a theoretical marketplace that seek to optimize a rational outcome and decisions made by human beings—with all their fear, greed, vulnerabilities, egos, and weaknesses.

Out of this gap was born a body of research on behavioral finance by psychologists Amos Tversky and Daniel Kahneman who won the Nobel Prize in 2002 for the study of the effects of human biases and emotions on market participants.1

1www.nobelprize.org/prices/economic-sciences/2002/kahneman/facts

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