In Behavioral Investment Theory, the view that behavior is work and it must yield a favorable energy input/output ratio is called
The correct answer and explanation is:
The correct answer is “Behavioral Life-Cycle Hypothesis.”
Explanation:
In Behavioral Investment Theory, one important concept is that human behavior, especially financial decision-making, can be viewed as a form of work or effort that people undertake. The idea is that individuals allocate their mental and physical energy toward activities that provide a favorable return on investment—in this case, a positive energy input/output ratio.
The Behavioral Life-Cycle Hypothesis extends traditional life-cycle models by incorporating psychological and behavioral factors into how people manage their wealth and consumption over their lifetime. It suggests that people make financial decisions not only based on rational calculations of wealth and income but also considering their psychological comfort, habits, and perceived effort or “work” involved.
This hypothesis posits that people engage in financial behavior (like saving, investing, or spending) only if the effort or energy they put into managing these behaviors results in a worthwhile reward. For example, if managing a complicated investment portfolio is too mentally taxing compared to the gains it might yield, a person may avoid it altogether, even if the financial returns are potentially higher.
This concept ties closely to the notion of bounded rationality—where cognitive limitations and psychological factors influence economic decisions. People seek to maximize their utility, but utility here is broadened to include emotional satisfaction and cognitive ease, not just financial outcomes.
In summary, the Behavioral Life-Cycle Hypothesis reflects the reality that financial behavior involves psychological effort, and individuals aim for an efficient balance where their efforts produce sufficient benefits, making their behavior “worth the work.” This explains why some people might prefer simpler financial decisions or default options, as these choices minimize mental strain while still delivering acceptable outcomes.