Excerpt from On the Simulation of Investment Behavior, Vol. 5
The end result is a portfolio chosen for a particular account where the portfolio specifies the name of the security, the number of shares to purchase, the price per share at that time, and the total amount expended for each issue.
The model was tested for its ability to predict the actual behavior of the investor by requiring it to select a series of portfolios for an actual set of trust accounts. These accounts were processed both by the investor and the model during the first and third quarters of 1960. The portfolios chosen by the model compared very favorably with those chosen by the investor. As a further test, the decision processes by which the model generated its portfolios were compared with the investor's observed decision behavior. Though it is not possible to say that the model completely reproduces the observed behavior, the evidence from these tests strongly supports the hypothesis that the model explains a considerable portion of the observed investment behavior.
A model that describes and predicts one institutional investor's portfolio selection process is a long way from becoming a general theory of portfolio selection. But the evidence is there that models can be built that explain and predict, to a considerable level of detail, the decision processes of human investors.
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