Diversification involves spreading investments across asset classes, sectors, and regions to reduce risk and enhance returns, while regular rebalancing maintains alignment with investment goals.

Financial economics integrates economic principles with financial theory to analyze markets, investments, and monetary systems, focusing on decision-making under uncertainty and resource allocation over time.

Behavioral finance investigates psychological factors influencing investment decisions, revealing that emotions and cognitive biases often lead to irrational market behavior and suboptimal financial outcomes.

Companies utilize behavioral economics principles to influence consumer decisions, employing strategies like loss aversion, social proof, and choice architecture to optimize marketing effectiveness and enhance consumer engagement.

Investing requires balancing potential rewards with risks. The risk-return tradeoff influences decisions, with diversification and market conditions impacting the dynamics of different asset classes.

Prospect Theory illustrates how individuals make decisions under uncertainty, emphasizing risk aversion for gains, risk-seeking for losses, and the influence of loss aversion on behavior.