Which of the following is a limitation of Behavioral Investment Theory (BIT)?

Behavioral Investment Theory (BIT) is grounded in the understanding that investors do not always behave rationally and are subject to cognitive and emotional biases that can lead to systematic errors in judgment. The correct answer identifies a central tenet of BIT, which highlights these cognitive and behavioral biases.

Cognitive biases can manifest in various ways, such as overconfidence, loss aversion, and anchoring, which may cause investors to deviate from rational decision-making. These biases can impact their investment choices and market behavior, often leading to inefficiencies and anomalies in markets. Understanding these limitations helps investors and analysts account for irrational behaviors in their investment strategies and asset pricing models.

In contrast, the other options suggest characteristics of investors that do not align with the principles of BIT. For instance, stating that investors always act rationally directly contradicts the foundation of BIT, as it assumes irrational behavior due to biases. Similarly, the idea that investors require no unique treatment overlooks the nuances of behavioral finance that emphasize the need for tailored strategies to address individual biases. Lastly, the notion that investors do not change over time ignores the concept of learning and adaptation, which is crucial in behavioral finance as individuals can modify their behavior based on experiences and feedback.